7 1 Sydkorea 1.1 Summary The Smart Grid Project in Korea was initiated following the launch of the Low Carbon Green Growth Policy. The final target of this project is to develop a nationwide Smart Grid System for the first time in the world. As a new growth engine, the project is focused on not only the technical development but also the market creation. Moreover, various activities to enter the over-sea market have been planned. As the top level control tower, the Presidential Committee on Green Growth coordinates and evaluates the Smart Grid policies of various ministries. Among the ministries, the Ministry of Knowledge Economy is the major authority corresponding to the Smart Grid Project and supervises organizations such as the Korea Smart Grid Institute, the Korea Smart Grid Association, and Korea Institute of Energy Technology Evaluation and Planning. The Korea Smart Grid Institute and Korea Smart Grid Association manage cooperation among private, public, academic, and government sectors. The government established the National Smart Grid Road Map of Korea in January The Smart Grid Promotion Act was legislated in May 2011 to overcome the limits of conventional law and to promote Smart Grid activities. In accordance with the act, the First Five Year Master Plan for Smart Grid, which is the detail action plan for 2012 to 2016 of the National Smart Grid Road Map of Korea, was established in July According to these plans, implementation technologies of Smart Grid are classified into five major areas considering creation of new business models such as: Smart Power Grid, Smart Consumer, Smart Transportation, Smart Renewable, and Smart Electricity Service. The nationwide Smart Grid will be developed through following stages: Smart Grid Test-bed : 2010 to Smart Grid Hub Cities : 2013 to 2016 Wide Area Smart Grid : to 2020 Nationwide Smart Grid : to 2030 Total 25 billion USD will be invested to develop the nationwide Smart Grid until Among them, 3,235 million USD will be invested during 2013 to In order to develop and verify the Smart Grid technology, various projects are on progress. Among the projects, the Jeju Smart Grid Test-Bed Project and the Korea Micro Energy Grid Project, are almost completed. Recently, many government organizations recognized the importance of Smart Grid in the future and made a plan about the Smart Grid. Ministry of Strategy and Finance declared to develop the Smart Grid earlier than the National Smart Grid Road Map to bring up the Smart Grid as a new growth engine. Also, early development of the Smart Grid is planned in the 6th National Electric Power Supply Plan. In addition, the Presidential Committee on the Green Growth suggested the Smart Grid Project to be continued as a Mega Project in the new government. Reflecting the opinion of the committee, the new president pledged to develop the Smart Grid and to reform electricity pricing system. Consequently, it is seems that the supporting to the Smart Grid Project will be continued in the new government. 7

8 1.2 Background Electricity in Korea Korea highly depends on energy imported from foreign countries. About 97 per cent of energy including oil, gas and coal is imported and only 3 per cent of energy is produced inside Korea. Nevertheless its energy consumption rate is still highest among the OECD countries. Electric power consumption increases even higher than the other energies mainly due to relatively low electricity price which is about one third of Japan and lowest in the OECD countries. Electric power consumption per person in Korea already exceeded that of Japan, France and UK whose GDP s per person are about double of Korea. Main reason for high energy consuming rate in Korea results from energy over consuming industrial structure. Steel, automobile, semiconductor, ship building and chemical industries are major industries in Korea. They are all highly energy consuming and reached to the limit of growth. Figure 1-1 shows the generation portfolio of Korea at the end of More than 80 per cent of power plants are nuclear, coal, and gas generation plants. In accordance with the 6 th National Electric Power Supply Plan, renewable power generation is expected to be increased up to 20.2per cent of total generation until Figure 1-1 The rate of power plants at the end of 2012 in Korea Source: The 6 th National Electric Power Supply Plan The portion of private generation was 12.2 per cent of total generation and 72 per cent of the private productions came from LNG power plants and 19 per cent of the private productions came from renewable energy plants in Figure 1-2 illustrates the rate of final energy consumption in Korea. The rate of electrical energy has increased relatively rapidly compared to the rate of other energies. Currently, electrical energy occupies 20 per cent of the final energy consumption. To support the major industry, the Korean government kept the electricity price strictly low. 8

9 Figure 1-2 Breakdown of final energy consumption in Korea Source: Korea Energy Management Corporation, 2012 Handbook of Energy & Economic Statistics in Korea The electricity industry of Korea is composed of Korea Electric Power Corporation (KEPCO), Korea Power Exchange (KPX), 6 Generation companies and Independent Power Producers (IPP). Among them, KEPCO is the mother company of 6 Generation companies and in charge of transmission, distribution and electricity sales services. KPX is a non-profit independent system and market operator. Until 2001, KEPCO was a single monopoly company which owned all transmission, distribution, and generation facilities. During the government of President D. J. Kim, electricity industry of Korea was restructured due to the following reasons: Inefficient monopoly structure Encouraging competition by introducing electricity market Economic crisis and IMF Bailout The Power Industry Restructuring Promotion Act was enacted in December And the original plan for restructuring was following the three steps as: 1st Stage (2001to2002) : Competition of generation (Privatization) 2nd Stage (2003to2008) : Competition of wholesale (Power supply partitioning) 3rd Stage (2009 on) : Competition of retail (Right of consumer choice) In April 2001, KEPCO was spun off into six power generation companies and KPX. However, during the government of President M. H. Roh, the restructuring policy was reviewed, and Economic and Social Development Commission (ESDC) decided to defer the deregulation process. Recently, new President K. H. Park publically pledged to reform the inefficiency of monopolistic structure in power market and develop the robust supply and demand market under fair competition. The electricity prices of Korea are divided into 6 types according to consumer groups as: 1) Residential, 2) Official and Commercial, 3) Education, 4) Industry, 5) Agriculture, and 6) Street Light services. For the residential service, a 6-step progressively increasing price system is adopted to suppress the excessive electricity consumption. Still, all types of services cannot recover production cost yet as shown in Table 1. 9

10 Table 1-1 Electricity sales statistics according to consumer groups in 2011 Type of Service Demand (2011) Average price (USD/kWh) Cost recovery rate (2011) Residential 18.0% % 85% Official and Commercial 21.9% % 93% Education 1.7% % 87% Industry 55.2% % 92% Agriculture 2.5% % 34% Street Light 0.7% % 82% Source: KEPCO, Electricity Price System and the Direction of Policy, July, Expected cost recovery rate (2012) Korean electric power system has evolved very rapidly. During the last 40 years, generation capacity has been increased from 400MW to 80,000MW and the quality of electricity service has also improved dramatically. Figure 1-3 Power system development in Korea Annual power outage duration is less than 15 minutes which is shortest in the world. Due to highly automated and renovated facilities, transmission and distribution losses are less than 4 per cent which is also smallest in the world. Although Korean electric power network shows one of the best performances in the world, it also has its own inherent limits as: Korean power system is isolated. Excessive generation facilities are required due to restricted power trading. Conventional power system facilities such as transmission lines and large generators are too densely constructed in small territory. Due to keen response to environmental problem of Korean people, it became harder and harder to find the sites for generation and transmission facilities. 10

11 Due to low and flat electricity price for industrial load, demand management during the peak load period is difficult. Considering the above situations and confronting the challenge of climate change, the Korean government pre-emptively adopted the Low Carbon Green Growth policy. And the Smart Grid which integrates the electric power technology and the information technology got spotlight as an essential infrastructure for the Green Growth society th National Electric Power Supply Plan: 2013 to 2027 The Electric Power Supply Plan is announced every three years to cover for the coming 15 years. The most current Plan is the 6th National Electric Power Supply Plan covering 2013 to Usually, the objects of the National Electric Power Supply Plan were to ensure stable power reserve and to expand generation facilities considering people s acceptance and grid conditions. However, in the 6th National Electric Power Supply Plan, minimizing the construction of new power generation facilities by utilizing active demand management is considered as an important task. The first core task of this plan is to minimize the demand prediction error to ensure power reserve, and the second task is the demand management. To accomplish these, the plan proposed the diffusion of the Smart Grid and the improvement of electricity price system. For improving the electricity price system, this plan suggests the following three tasks: The electricity price should be increased to proper level. Various electricity price systems which reflect fuel cost will be introduced. Demand management system utilizing the real time electricity price will be expanded. AMI will be supplied to all customers by 2020 and energy storage system will be expanded to disperse peak demand. By actively utilizing the demand management, the plan predicted that the peak demand will be reduced by 15 per cent and power consumption will be reduced by 12 per cent Main actor- Presidential Committee on Green Growth In the meeting of the Green Growth Committee in February 2009, the Korean government declared visions of the Low Carbon Green Growth Society including development of the world first nationwide Smart Grid. Korea has more favourable situations compared to other countries for constructing the Smart Grid such as dense population, small territory, and advanced IT technology which are essential for the Smart Grid. In addition, the Korean transmission and distribution system is operated by a single company-kepco which is owned by government. Because the Smart Grid is a vital infrastructure for the Green Growth society, the Green Growth Committee has been consistently supporting to establish nationwide Smart Grid. Green Growth Committee proposed three strategic stages for the Smart Grid development until 2030 as: Designating Smart the Grid pilot city in 2011 Developing consumer side Smart Grid until 2020 Developing complete nationwide Smart Grid until

12 1.2.4 Why promote a smarter grid? Plan for constructing nationwide Smart Grid in Korea was originated from the Low Carbon Green Growth policy which was initiated by President M.B Lee. In the first meeting of the Presidential Committee on Green Growth in February 2009, the Korean government declared three visions for Green Growth such as: 1) Searching for the new growth engines, 2) Improving the quality of life and environment, and 3) Contributing to the world. Along with these visions, the Korean government also declared that it will reduce the CO2 emission by 20 per cent from the amount expected based on business as usual until At the same time, Electric Vehicle deployment plan was also announced. According to this plan, 1 million Electric Vehicles will be in the street until year 2020 and reduce CO2 emission by 6.7 million tons. In addition, efficient energy consumption and renewable energy supply became primary issue to realize the low carbon green growth society. In the meeting of the Green Growth Committee in February 2009, the Korean government declared visions of the Low Carbon Green Growth Society including development of the world first nationwide Smart Grid. Korea has more favourable situations compared to other countries for constructing the Smart Grid. It has dense population, small territory, and advanced IT technology which are essential for the Smart Grid. In addition, the Korean transmission and distribution system is operated by a single company-kepco which is owned by government. Because the Smart Grid is a vital infrastructure for the Green Growth society, the Green Growth Committee has been consistently supporting to establish nationwide Smart Grid. Green Growth Committee proposed three strategic stages for the Smart Grid development until 2030 as: Designating Smart the Grid pilot city in 2011 Developing consumer side Smart Grid until 2020 Developing complete nationwide Smart Grid until 2030 National Smart Grid Road Map of Korea The Smart Grid Promotion Act (described in later section) calls for establishment and revision of a roadmap every five years. As climate change and depletion of fossil fuel continue to accelerate, it has incurred many environmental crises to the world. In this circumstance, global efforts have been continued to cope with the difficulties and Korea is not an exception. Moreover, the Korean government decided to lead the situation with pre-emptive efforts to overcome the crisis. On the other hand, the Korean government also had to consider whether the reduction of CO2 emission may cause to slow down the economic growth. Confronting this problem, the concept of Low Carbon Green Growth was introduced, with which it can reduce CO2 emission and achieve economic development simultaneously. To accomplish this goal, new green technologies centred on the Smart Grid are essential driving forces. And these technologies will create new growth engine for low carbon green growth society. Based on these circumstances, the Korean government established the National Smart Grid Road Map of Korea in January According to the National Smart Grid Road Map, Korea plans to develop the Smart Grid following the three stages as: 1 st Stage : The Smart Grid Test-Bed until Constructing and operating Smart Grid Test-Bed 12

13 - Verifying the Smart Grid technologies 2 nd Stage : Wide area Smart Grid until Expanding Smart Grid across metropolitan areas - Completing customer side Smart Grid 3 rd Stage : Nationwide Smart Grid until Completing a nationwide Smart Grid Figure 1-4 shows the road map for the Smart Grid of Korea until Figure 1-4 National Smart Grid Road Map of Korea In the road map, the implementation technologies of Smart Grid are classified into five major areas considering creation of new business models. Construction plans of each area are designed to follow the 3 stages mentioned above as: Smart Power Grid : Constructing open power platform and automatic recovery system - 1st stage : Developing smart transmission and distribution system technologiesand DC distribution system technologies - 2nd stage : Expanding smart transmission and distribution systems by constructing the Smart Grid across metropolitan areas - 3rd stage : Operating an integrated Smart Grid by building a failure prediction and automatic recovery system Smart Place (Consumer) : Developing AMI and smart Energy Management System - 1st stage : Managing power of the home, Diversifying the consumer choices - 2nd stage : Encouraging consumer side power generation, Managing power of the intelligent building/factory 13

14 - 3rd stage : Constructing zero energy home/building Smart Transportation : Building nationwide EV charging infrastructure and V2G - 1st stage : Developing EV charging technologies, Demonstrating EV charging system and EV - 2nd stage : Expanding EV charging system and EV, Encouraging business related to EV - 3rd stage : Generalizing EV charging system, Diversifying EV charging service Smart Renewable : Constructing large scale renewable energy power generation - 1st stage : Connecting renewable power plant to conventional power system, Operating microgrid test-bed and small scale storage system - 2nd stage : Constructing large scale renewable generation systems, Propagating microgrid test-bed, Operating mid and large scale storage systems - 3rd stage : Commercializing microgrid, Expanding large scale renewable generation system Smart Electricity Service : Developing electricity price system and smart power trading system - 1st stage : Developing and verifying various pricing systems including realtime pricing system - 2nd stage : Implementing nationwide real-time pricing system - 3rd stage : Operating an integrated power trading system In hope to lead the global Smart Grid market, Korea plans to secure the competitiveness in core technologies such as AMI, security, EV charging system, and energy storage system (ESS). Also, the standardization of the Smart Grid is essential for entering the global market. Considering this, the Korean government strongly supports for establishing standardization guide line as well as participating in the international standardization activities. The Korean government proposed a budget plan for developing the Smart Grid. By this plan, 25 billion USD will be invested until According to the road map, the Korean government is in charge of investment for developing the mid-long term technologies and public infrastructure. On the other hand, private companies are expected to increase their investment voluntarily depending on market maturity. Before the market is mature, private companies should invest compulsorily by law. The detail budget plan for nationwide Smart Grid construction until 2030 is shown in Table

15 Table 1-2 Budget Plan of National Smart Grid Road Map of Korea Technology Development (Government/ Private) Infra Establishment (Government/ Private) 1 st Stage( 12) 2 nd Stage( 20) 3 rd Stage( 30) Total (179.2/ 203.7) (33.4/ 683.2) 1,692.9 (659.8/ ) 6,456.2 (419.7/ 6,036.5) 4,271.4 (1,173.9/ 3,097.5) 11,498.9 (0.0/ 11,498.9) 6,347.3 (2,013/ 4,334.3) 18,671.6 (453.1/ 18,218.5) Total 1, , , ,018.9 Unit: Million USD Source: The Ministry of Knowledge Economy, "National Smart Grid Road Map of Korea", January The total benefit is expected as billion USD which is six times greater than the investment. The Smart Grid is expected to provide key solution for the increase of the energy efficiency and CO2 reduction. And it is expected to be a major driving force to create a new growth engine for the Low Carbon Green Growth. Expected benefits until 2030 are summarized as: Reducing energy import- 42,647.9 million USD Reducing CO2 emission million tons Avoiding generation plant construction- 2,900 million USD Increasing export- 44,807.0 million USD Creating domestic market- 67,000 million USD Creating new jobs- 86,008 1 Medium and Long Term Plan: Ministry of Strategy and Finance In the end of 2012, the Ministry of Strategy and Finance established the Medium and Long Term Plan. The ministry analyzed risks which may threaten economic growth of Korea as: 1) Major industries of Korea heavily consume energy while most energy resources are imported from overseas and 2) Expansion of power infrastructure such as power plants and transmission facilities becomes much difficult due to increasing concern for environment and safety. In order to overcome the risks, the ministry proposed three policy directions in the plan: 1) Establishing new energy policy paradigm centered on demand management, 2) Expanding low carbon energy, and 3) Expanding competition principle in energy industry. The goals and strategies of each policy direction are: Establishing New Energy Policy Paradigm centered on Demand Management - Goals : Encouraging early development of the Smart Grid, Bringing up Smart Grid industry as a new growth engine - Strategy : Establishing distributed Smart Grid ecosystem, Improving electricity price system Expanding Low Carbon Energy 1 The Ministry of Knowledge Economy, "National Smart Grid Road Map of Korea", January

16 - Goals : Reducing CO2, Pursuing energy independence - Strategy : Diversifying energy resources, Expanding renewable energies, Introducing non-traditional energy such as shale gas Expanding Competition Principle in Energy Industry - Goals : Implementing open electricity retail market in Smart Grid Hub Cities - Strategy : Promoting high value added and low energy consuming industries 1.3 How to promote a smarter grid Smart Grid Promotion Act Even though the National Smart Grid Road Map was established, there still remained many obstacles disturbing the effective development of the Smart Grid under conventional legal system. In May 2011, the Smart Grid Promotion Act was legislated to eliminate these barriers of conventional law and to achieve following goals: 1) Promoting the construction and utilization of the Smart Grid 2) Encouraging the related industries 3) Coping with the climate change 4) Developing the infrastructure of the Low Carbon Green Growth Industry 5) Devoting to innovating the energy consumption and the national economic development. According to the Smart Grid Promotion Act, the Korean government takes the duties to improve the regulations, promote the investment environments, and prepare the development plans. On the other hand, by this Act, the private companies have to participate and cooperate to the government policy. Major contents of the Smart Grid Promotion Act can be summarized as: Establishing and implementing the Master Plan for the Smart Grid every 5 years (Article 4) Preparing implementation plan every year (Article 5) Supporting the R&D and Human resource (Article 10) Supporting technology verification and standardization (Article 15, 17) Selecting the supporting agency for the Smart Grid (Article 19) Selecting the Smart Grid Hub City (Article 19) Establishing the Korea Smart Grid Association (Article 20) Data Collection, Utilization and Security (Article 21-23) Ensuring interoperability (Article 25) First Five Year Master Plan for Smart Grid In accordance with the Smart Grid Promotion Act, the Korean government established the First Five Year Master Plan for the Smart Grid in July The plan is based on the Na- 16

17 tional Smart Grid Road Map of Korea and includes more detail and concrete procedures until Moreover, the plan also describes specific objectives, policy directions, and overall requirements of mid and long term policy to promote the Smart Grid. The First Five Year Master Plan for the Smart Grid aims to: Eliminating entry barriers through improvement on policy Creating an initial market through government support Planning and implementing technical development Establishing the foundation for new industry development The final policy goal of the plan is to develop 7 smart hub cities by Centred on these hub cities, the Smart Grid will be expanded to the Wide Area Smart Grid by Finally, the world s first nationwide Smart Grid is expected to be implemented in Korea by The strategic goals and related technologies of major areas of the Smart Grid are summarized as: Smart Electricity Service : Acquiring 1,200MW demand resources - Real time pricing - Demand response operating system - Demand response service provider Smart Consumer : Providing smart meters to 50 per cent of consumers - Next generation AMI system - Smart home appliances - Energy management system - Providing about 9,460,000 AMI systems Smart Transportation : Developing 150,000 EV charging stations - EV parts and material technology - Quick and slow charging technology - EV ICT system - Vehicle to grid (V2G) technology - EV charging information system. Smart Transmission and Distribution : Improving electricity reliability by 10 per cent - Smart transmission and distribution technology - Energy storage system - Developing 71 digital substations and 41 smart distribution system Smart Renewable : Replacing 4.2 per cent of total energy - Energy storage technology - Power grid interfacing technology - Energy storage service provider 17

18 Detailed promotion strategies to achieve these goals are also proposed as: System improvement - Introducing the various electricity pricing systems - Expanding the smart demand management - Providing open power market to providers of the Smart Grid service and allowing customers to select electric service provider Market creation - Finding business model from domestic and oversea demonstrations - Supplying core appliance such as AMI, EV, and ESS Technology development - Launching the Smart Grid supporting projects - Establishing detailed plans and strategies Infrastructure development - Establishing standardization and assessment system - Developing the Smart Grid information security techniques - Establishing detailed plans and strategies - Training the Smart Grid specialist - Entering global market based on international cooperation - Promoting consumer participation Figure 1-5 shows goals and strategies of the First Five Year Master Plan. Figure 1-5 Goals and strategies of the First Five Year Master Plan Following the First Five Year Master Plan for the Smart Grid, total 3,235 million USD will be invested. Among this budget, the Korean government will invest 1,565 million USD and private companies will invest 1,670 million USD. The detailed investment plans are: System improvement- 127 million USD 18

19 Market creation- 2,288 million USD Technology development- 698 million USD Infrastructure development- 122 million USD The total benefit is expected as 8,790 million USD, which is about three times greater than the total investment. These expected benefits are summarized as: Value Added- 2,168 million USD Reduction of electricity consumption- 3,392 million USD Avoiding power plant construction- 664 million USD CO2 Reduction- 27 million USD Transmission loss and blackout reduction- 378 million USD Smart meter- 867 million USD EV charging system- 805million USD Energy storage system- 154 million USD Demand response- 335 million USD 2 The investment plan and the expected benefits are summarized in Figure 1-6. Figure 1-6 Investment plan and expected benefit of the First Five Year Master Plan Source: "First Five Year Master Plan for Smart Grid", January Plan for Smart Grid Hub City Development According to the National Smart Grid Road Map, the Korean government planned to establish Smart Grid Hub Cities. Even though the plan was already prepared, the selection of the Smart Grid Hub City was delayed due to the following reasons until the Jeju Smart Grid Test Bed project is completed. 2 "First Five Year Master Plan for Smart Grid", January

20 Lack of difference between Test Bed and Hub City Insufficient technology and the business model validation Immaturity of laws and regulations The plan is updated in the First Five Year Mater Plan for Smart Grid. According to the updated plan, a city in metropolitan areas with the population between 100,000 and 1,000,000 will be selected as a candidate of 7 Smart Grid Hub Cities. The Smart Grid Hub Cities are also classified into three types: 1) Smart Consumer Hub City, 2) Smart Transportation Hub City, and 3) Smart Renewable Hub City. In addition, the selection procedure and the funding strategy are briefly explained Plan for National Smart Grid Development As described in the previous section, the Korean government established the plan to implement the nationwide Smart Grid until 2030 through three stages. In the plan, the Smart Grid technologies are categorized according to creation of new business models: Smart Power Grid, Smart Consumer, Smart Transportation, Smart Renewable, and Smart Electricity Service. The first stage of the plan is to build Smart Grid Test-Bed during In this stage, the following technologies and infrastructures have been developed, tested, and verified in the Test-Bed. Smart Power Grid - Digital Substation Technology - Distribution Automation Technology - Transmission Facility Monitoring Technology Smart Consumer - Smart Home Energy Management System - Diversification of Consumer Choices Smart Transportation - Building EV Charging System - EV Demonstration Operation Smart Renewable - Secure Power Grid Interface Technology - Microgrid Demonstration Site Operation - Small Scale Energy Storage System Operation Smart Electricity Service - Real Time Pricing System Development - Real Time Whole Sale Trading Demonstration - Real Time Demand Response Demonstration 20

21 In the second stage of the plan, the Wide Area Smart Grid including the 7 Smart Hub Cities will be implemented in Korea during , and the following technologies will be developed and verified. Smart Power Grid - Real Time Wide Area Monitoring and Control - Connecting Distributed Generation and Substation System of Storage Smart Consumer - Smart Building/Factory Energy Management System - Consumers Power Production Activation Smart Transportation - EV Supply Expansion - Charging Infrastructure and Services Commercialization Smart Renewable - Renewable Energy Large Scale Supply - Microgrid Demonstration Deployment - Medium and Bulk Storage System Operation Smart Electricity Service - Wholesale Electricity Derivatives Trade - RTP Implementation - Spontaneous Market Participants Appearance Finally, the nationwide Smart Grid will be implemented in Korea by expanding the Wide Area Smart Grid until In order to this, the following technologies are scheduled to be developed in the last stage of the plan. Smart Power Grid - Integrated Energy and Smart Grid Systems Operation Smart Consumer - Zero Energy Home/Building Smart Transportation - Charging Infrastructure Generalization - Diverse EV and Charging Services - V2G Services Smart Renewable - Renewable Energy Generalization - Microgrid Commercialization Smart Electricity Service 21

22 - Various Power Trade Vitalization - Power-based Inter-industry Convergence Market Vitalization - Leading Northeast Asia s Power Market Key Actors Since the Smart Grid Plan was designed to develop the infrastructure for the Low Carbon Green Growth Society, the PCGG is the top-level organization related to the Smart Grid Activities. The committee deliberates on the major plans and policies for the Smart Grid. Under the direction of the PCGG, the practical matters of the Smart Grid are handled mostly by four ministries such as 1) Ministry of Knowledge Economy, 2) Ministry of Strategy and Finance, 3) Ministry of Environment, and 4) Ministry of Educational Science and technology. Particularly, the Smart Grid plans and projects are mainly designed and executed by the MKE, and it controls many affiliated organizations related to the Smart Grid such as KSGA, KSGI, KETEP, and KEPCO. Figure 1-7 Structure of the organizations related to the Smart Grid Presidential Committee on Green Growth The Presidential Committee on Green Growth (PCGG) was established under the supervision of the former president M.B Lee on August 15, The succeeding committee under the leadership of President Park is not announced yet, as of March PCGG was headed by the President and was composed of about 50 members 3. In the committee, there are two co-chairmen. One of them is Prime Minister of Korea and the other chairman is nominated by president. Many experts from diverse fields are also included in this committee. 13 members designated by law are as follows: Minister of Strategy and Finance Minister of Public Administration and Security Minister of Education, Science and Technology Minister of Foreign Affairs and Trade 3 22

23 Minister of Culture, Sports and Tourism Minister of Ministry for Food, Agriculture, Forestry and Fisheries Minister of Knowledge Economy Minister of Environment Minister of Gender Equality and Family Minister of Land, Transport and Maritime Affairs Chairperson of Korea Communications Commission Chairperson of Financial Services Commission Assistant Minister for Prime Minister s Office In addition, about 30 members are nominated by president and they belong to one of the following 4 subcommittees: Climate Change & Energy Subcommittee Green Growth & Industry Subcommittee Green Strategy & Institution Subcommittee Green Life Subcommittee PCGG plays essential roles to realize Low Carbon Green Growth society and economy in Korea. PCGG deliberates on the government s major policies, plans, and subjects related to the Green Growth. Moreover, this committee deals with the matters concerning the performance of the Green Growth policies and plans and participates in the global Green Growth cooperation activities. In particular, PCGG recognized that the Smart Grid is the core infrastructure for Low Carbon Green Growth and decided to support in various ways. Main roles of PCGG on the Smart Grid are as follows: The highest deliberative organization for the policy concerning the Smart Grid Establishing national visions and plans for the Smart Grid Coordinating central administrative agencies and local governments when conflicts occur Ministry of Knowledge Economy The Ministry of Knowledge Economy (MKE) was established in February 2008 to oversee international trade issues and embedding traditional goods and services with a premium derived from greater levels of research and innovation intelligence. In addition, It proposes the policies concerning industry, trade and energy and works to encourage foreign investment to Korea. MKE has been trying to achieve its vision of the future such as: 1) Developing future growth engines, 2) Securing sustainable energy agenda, 3) Upgrading quality of life, and 4) Driving force supporting breakthrough technologies and ideas. Especially, the ministry has played the role for major corresponding authority and prepared budgets for the Smart Grid. Also, MKE designs and implements the Smart Grid development plans and projects. The major activities of MKE related to the Smart Grid can be summarized as: 23

24 Establishing the National Smart Grid Roadmap of Korea and the First Five Year Master Plan for Smart Grid Designing and funding the Smart Grid Test-Bed Supervising the Smart Grid related organizations such as KSGI, KSGA, KETEP, and KEPCO Korea Smart Grid Institute The Korea Smart Grid Institute (KSGI) was launched to achieve national energy competiveness and to advance the Smart Grid by MKE in August KSGI is the secretariat organization of Smart Grid initiative and projects in Korea. The institute targets to explore projects on the development of Smart Grid technologies. Led by Board of Directors, there are 6 teams under Director General such as: 1) Policy planning team, 2) Strategy planning & policy team, 3) Demonstration program team, 4) Domestic deployment team, 5) R&D management team, and 6) International cooperation team. The organizational structure of KSGI is shown in Figure 8. Figure 1-8 Organizational structure of KSGI Source: The major role of KSGI is to support the establishment of the government s policies such as legislation, regulation, standards and security of Smart Grid. In addition, KSGI comprehensively manages National Smart Grid Road Map, the Smart Grid Test-Bed, power IT and Smart Grid R&D Projects. The institute assists in deployment of Smart Grid technologies, devices and products such as AMI and EV charging infrastructure. The institute also promotes international cooperation for Smart Grid, business supporting exhibitions, export of Smart Grid project outputs, Smart Grid certification and Smart Grid information security. KSGI makes a suggestion of other policies to support the Smart grid related issues. KSGI has performed various activities since Some of the major activities are as follows: October Hosting the Smart Grid Conference 2009 October Launching the Jeju Smart Grid Test-Bed 24

25 January Establishing the National Smart Grid Road Map May Preparing the Smart Grid Promotion Act August Establishing the ISGAN Secretariat Office June Preparing the First Five Year Master Plan for Smart Grid in Korea July Conducting the AMI and ESS Supply Project 4 Korea Smart Grid Association In response to rapid improvement of Smart Grid technology, The Korea Smart Grid Association (KSGA) was established to develop Smart Grid projects and encourage the Smart Grid industry in The association is a member of the Global Smart Grid Federation. It has focused on facilitating projects for establishing the Smart Grid infrastructure and conducting smart grid research and analysis. Another important task of the KSGA is to deliver ideas and opinions of private sectors in various industries related to the Smart Grid. The status of member companies is shown below Figure 9. Figure 1-9 Member companies belonging to KSGA Source : KSGA KSGA has more than 100 member companies 5. Director of KSGA has the responsibility for general management of the organization. Under the supervision of director, there are 3 departments such as: 1) Planning & management division, 2) Business support division, and 3) Standardization team. The detailed organizational structure of KSGA is shown in Figure

26 Figure 1-10 Organizational structure of KSGA Source : KSGA KSGA takes the role for coordinating government and private sector stakeholders relevant to Smart Grid. In order to perform this role effectively, the association operates working groups related to Smart Grid and hosts industrial workshops. Another important mission of KSGA is to support standardization activities and provide Smart Grid expert training program. The major tasks of the association are can be classified into 5 areas as: Projects for establishing on the Smart Grid infrastructure Research and analysis on the Smart Grid Role as a mediator between the government and private-sector stakeholders Standardization project The Smart Grid expert training system In order to contribute to implementing national Green Growth policy, KSGA has executed many activities which help the development of Smart Grid technology since The association has hosted and attended many forums, conferences, and seminars. The major activities of the KSGA so far include signing of a MOU with a counterpart in US, UK, India and Australia, hosting forums standardization and international events and establishing the Smart Grid Call Centre 5. Korea Institute of Energy Technology Evaluation and Planning The Korea Institute of Energy Technology Evaluation and Planning (KETEP) was established in May According to the Energy Act, it is the government agency under the joint authority of MKE. The institute has a vision for leading the Low Carbon Green Growth through energy technology R&D. Main mission of KETEP is to innovate in green growth technologies to realize sustainable growth. KETEP has more than 130 employees with annual budgets of 800 million USD (FY 2010) 6. Headed by Director, the organization of the KETEP is composed of Auditor, Assistant Inspector, Energy Technology Policy Center and 3 divisions such as the management planning division, R&D planning division, and R&D Evaluation & management division. Each division has a several teams to perform their task with dispatch

27 KETEP plans, evaluates and manages the national energy R&D projects, including projects relating to smart grid which will be described in the later section. Particularly, it has 3 major roles for the low carbon energy R&D in Korea such as: 1) Developing innovative energy fusion technologies, 2) Supporting overall national energy policies, and 3) Managing the energy related government R&D projects. Moreover, KETEP helps the new technologies move into the market and supports development and deployment of technologies for the energy efficiency. Regional government In the Fundamental Law on the Low Carbon Green Growth, the regional government has duties as: Article 5 : Responsibilities of the regional government - Each regional government shall fully cooperate in the central government s measures for realizing the Low Carbon Green Growth. - Each regional government shall, whenever it formulates and enforces measures for the Low Carbon Green Growth, take into consideration regional characteristics and conditions of the regional government. - Each regional government shall comprehensively consider impacts that its plans and projects have on the Low Carbon Green Growth in the course of formulating of various plans and executing of projects within its jurisdiction and shall intensify education and advocacy of the Low Carbon Green Growth for the regional residents. - Each regional government shall seek for measures necessary for encouraging activities of business entities, residents, and nongovernmental organizations for the Low Carbon Green Growth, such as providing them with information and financial support. Smart Grid is one of the major output of the Green Growth policy. Thus, according to this law, the regional government has to cooperate the Smart Grid activity of the central government. International Smart Grid Action Network The International Smart Grid Action Network (ISGAN) was established at the first Clean Energy Ministerial (CEM) on April At the inaugural ISGAN Executive Meeting in June 2011, Seoul, Korea, KSGI was selected by the Executive Committee as ISGAN s Operating Agent for a 3 year term with option for biannual extensions Research, development and innovation So far the Ministry of Knowledge Economy has developed most of the large scale national projects using the Fundamental Fund of Power Industry, and Korea Institute of Energy Technology Evaluation and Planning (KETEP) managed and evaluated those projects. On the other hand, other government organizations such as Ministry of Education, Science and Technology also perform the many projects related to the Smart Grid component technologies. In addition, many private companies have performed researches separately too. The Fundamental Fund of Power Industry was established for demand management, renewable energy support, power industry safety, and power industry R&D. By the 27

28 Electricity Enterprises Act, 3.7 per cent of the electricity price is levied as the Fundamental Fund of Power Industry. In 2012, the total fund was 2,089 million USD, and 21 per cent of the total fund was invested for the R&D. KETEP plays a central role in funding R&D in smart grid related technologies in Korea and has constantly upgraded the level of the Smart Grid technology. Recently, KETEP set up the 6th Basic Plan for Long-Term Electricity Supply and Demand. According to the plan, the Korean government intends to minimize the cost of generation construction by managing the demand actively and secure the reserve suitable for the Korean economy. About 50 per cent of the Fund for the researches supported by KETEP comes from Fundamental Fund of Power Industry. Another 50 per cent comes from private companies joining the project as matching funds. For example, in the Jeju Smart Grid Test-Bed project, the Korean government and the private sectors invested 70 million USD and 170 million USD, respectively. The major activities relevant to Smart Grid are as follows: Developing smart grid core technologies and Test-Bed platform Developing New Power Service using a Superconductor Developing HVDC Technology Developing Energy Storage System for Electric Vehicle Hosting Green Energy Award with MKE Operating the Green Certification System Promoting Offshore Wind Turbine 6 Jeju Smart Grid Test-Bed Project: December 2009 to May 2013 On December 2009, the Korean government launched the Jeju Smart Grid Test-Bed project, which is the most visible Smart Grid project in Korea, to develop and verify the Smart Grid technologies. The Korean government and the private sectors invested 70 million USD and 170 million USD, respectively 7. The Ministry of Knowledge Economy and the Korean Smart Grid Institute manage the project. The Test-Bed is composed of 6,000 homes, 2 substations, and 4 distribution lines and located at town of Gujwa Eub which is north east seashore of Jeju Island 8. At this town, renewable energy technologies are relatively easily tested, because there are abundant renewable energy resources such as wind and solar energies. The project aims to build the world largest and most advanced Smart Grid Test-Bed in order to promote the commercialization and export of the Smart Grid technologies. In the project, the Smart Grid technologies are classified into five areas: Smart Consumer - Advanced Metering Infra Structure(AMI), Energy Management System(EMS) Smart Transportation 7 Ministry of Knowledge Economy, The Construction of JeJu Smart Grid Test-Bed, September

29 - EV Charging Infrastructure, Vehicle to Grid(V2G) Smart Renewable - Microgrid, Energy Storage, Power Quality Smart Power Grid - Smart Transmission and Distribution, Smart Power Communication Network Smart Power Market - Power Trade, Smart Grid Power Market Operation The Korean government, KSGI, KEPCO, Jeju special self-governing province, KSGA, research institutes, academia, and 168 companies participated in the project. In accordance with National Smart Grid Road Map, verified technologies through the Test-Bed will be preferentially promoted to candidate for supply business and national standardization. The competition for participating in the project was 3 to 1. And the company joined the project invested the matching fund. Considering that a participating company can choose partner companies which will cooperate for Smart Grid business in the future, 12 consortiums are organized. Figure 1-11 Jeju Smart Grid Test-Bed Source: Up to now, component technologies and infrastructure have been developed and tested, and TOC has been operated since June Noticeable results of each consortium are summarized as: Smart Consumer 29

30 - SK consortium tested Building Energy Management System (BEMS) business in Jeju University Hospital. - KT consortium constructed and operated AMI using various communication ways in 500 homes. - LG consortium developed Smart appliances which response to electricity price. - KEPCO consortium supplied Smart Meter to 558 homes. Smart Transportation - KEPCO and SK consortiums constructed EV charging infrastructure considering Korean Standards. - GS consortium established operating center in Musucheon charging infrastructure. And the consortium conducted electric vehicle and electric scooter rental businesses Smart Renewable - KEPCO consortium constructed 5 renewable power plants. - POSCO consortium developed EMS for the Energy Storage System (ESS). - Hyundai consortium developed wind power generators and tested cooperation methods with other devices such as ESS and STATCOM. Smart Power Grid - KEPCO consortium constructed 5 new distribution lines for Smart Distribution and installed 14 Phase Measurement Units (PMUs) at generators, transmission lines, and substations for Smart Transmission. Also, the consortium implemented a digital substation system in Seongsan substation. Smart Power Market - KPX consortium tested various price systems and demonstrated power resale service 9. Korea Micro Energy Grid (K-MEG) Project: January 2011 to June 2014 On January 2011, the Korea Micro Energy Grid (K-MEG) project was launched to develop a micro energy grid which is one of the core technologies for the Smart Grid. The K-MEG project is managed by the Ministry of Knowledge Economy and the Office of Strategic R&D Planning. The Korean government and the private companies invested 50 million USD and 30 million USD, respectively 10. The K-MEG project aims to develop a new total energy solution which integrates various energy sources such as heat, electricity, and gas. The detail goals of the project are: Developing the next generation energy technology by utilizing the Smart Grid and Distributed Generation (DG) technologies 9 KSGI, 2009~2011Smart Grid Annual Report, February K-MEG, MKE, K-MEG Brochure 2012, October

32 1.3.7 Business development and export promotion According to the First Five Year Master Plan for the Smart Grid, the Korean government s activities to create the Smart Grid market are classified into three types as: Domestic Demonstration - Verifying the Smart Grid technologies and creating business model from the Jeju Test Bed and the Korean Micro Energy Grid projects - Establishing utilization plans for new demonstration sites after completion of the projects Oversea Demonstration - Establishing strategies and measures for the oversea demonstration - Proceeding with joint demonstration projects Core equipment supply - Providing smart meters to 50 per cent of consumers - Developing 150,000 EV charging stations - Supplying Energy Storage Systems (ESSs) with cumulative capacity of 20 million kwh Smart Grid Hub City - Establishing plans to implement 7 Smart Grid Hub Cities - Supplying AMI, ESS, and EV charging infrastructure on the 7 Smart Grid Hub Cities Korean Agency for Technology and Standards (KATS), the affiliated organization under the Ministry of Knowledge Economy, constituted Korea-EU Smart Grid Cooperation Agency to develop new business areas in the Smart Grid and support domestic companies to enter the global market. For the Technical Standardization of the Smart Grid, KATS constructed various private-oriented cooperation relationship with Germany and France, which are leading countries in renewable energy, EV, and EV charging system technologies. In order to form a partnership on civilian levels with the United States, Smart Grid Standardization Forum (SGSF) in Korea signed the MOU with the Smart Grid Interoperability Panel of the United States for the Technical Standardization. SGSF has taken an active part in the Technical Standardization of the Smart Grid. Main roles of SGSF are as follows: Coordinating standardization consensus on civilian level Developing standardization in home and abroad Cooperating on the international standardization SGSF promotes the Technical Standardization of the Smart Grid through private consensus, gathering opinion of industry, and standardization company-owned. The organization of SGSF is shown in Figure Particularly noteworthy is that KSGA is the secretariat office of SGSF. 32

33 Also, SGSF has supported developing standardization of the Jeju Smart Grid Test-Bed. With these efforts, the Korean Smart Grid was selected as a model of the East Asia and the West Pacific in October MKE adopted National Standards Coordinator (NSC) of the Smart Grid to enhance industrial competitiveness. NSC takes the role for coordinating and managing the Technical Standardization. Specially, NSC provides 1:1 consultation and support for medium and small-sized enterprises. In 2012, NSC established mid and long term master plan of standardization. And NSC is to create a virtuous circle between R&D and Standardization. Also, NSC supported cooperation of standardization in home and abroad. Smart Grid Standardization Forum Operating Committee Forum Secretariat Office (KSGA) Policy Department Smart Place Department Smart Transporation Department Smart Renewable Department Smart Power Grid Department Smart Energy Service Department Standardization Policy Standardization Road Map AMI Smart Home/ Building/Factory Smart Appliance Charging Infrastructure V2G Photovoltaic Wind Power Fuel Cell Smart Distribution Micro Grid Power Electronic Application Security Power Market Demand Response Figure 1-12 Organization chart of the Smart Grid Standardization Forum Source : KATS The main purpose of the Korean government is to preoccupy the global Smart Grid market. For this purpose, the Korean government legislated for the Smart Grid Promotion Act (SGPA) and organized KSGI and KSGA for organizing the private companies. Major task of KSGA is working with private sectors in various industries with projects related to the Smart Grid. KSGA accumulates their ideas and needs of industries and submit them to the government. Korea has advanced Information and Communication Technology in addition to advanced Electric Power Technologies. The Smart Grid is a system of systems. Integration of various area technologies is essential task. The Korean government has strong leadership over industries. This leadership is one of the most competitive advantages over other countries. However, the Smart Grid market is not mature yet and export of SG technologies is still in small scale. Nevertheless Korea technology of AMI, LED, and Lithium Battery already hold strong position in the global market. 33

34 1.3.8 Regulation One of the challenges to secure funding for the smart grid project is to design a legal, regulatory and tax framework necessary to provide sufficient incentives for the private sector to commit to the projects and to set up the new infrastructure that will be needed. The Smart Grid Promotion Act provides administrative and financial assistant from the government for an entity that develops the Smart Grid Technology and compensates investment costs of the Smart Grid provider to secure public interests using government funds including the Fundamental Fund of Power Industry. The Act on the Promotion of the Development, Use and Diffusion of new and Renewable Energy allows Minister of Knowledge Economy to give preferential subsidies from the Electrical Industry Foundation Fund for the difference between the standard price and the power trade price, if the power trade price of electricity supplied by new and renewable energy power generation is lower than the standard price, the will. The following incentives are also mentioned in the Smart Grid plans and expected to be enacted in the future; subsidy to implement the EV charging infrastructure, tax relief for the ESSs and low interest loans for construction of manufacturing facilities. Other regulations supporting investment by the private sector are: Building Act, mandating floor area ratio of the Smart Building to be increased by 3.5 per cent. Special Tax Treatment Control Act, 10 per cent of the investment costs shall be deduced from its income or corporation taxes for entities that invests in manufacturing facilities for Renewable Energy systems Special Tax Treatment Control Act, Local Tax Treatment Control Act, Enforcement Decree of the Urban Railway Act, provides maximum 3,700 USD tax incentive per vehicle to an EV purchaser Consumer engagement One of the primary concerns of the Korean Government is the consumer engagement. Because the Smart Grid makes bidirectional information change possible between the customers and the electric power suppliers, consumer engagement is a critical factor for success in the Smart Grid. To expand consumer choice, the Korean government made plans for introducing the real time electric price system and competitive electricity market. At the Jeju test-bed, measures to promote consumer awareness and engagement is implemented. Major purpose of 5 Exhibition Halls in Jeju Test-Bed is to draw the interest of people for the Smart Grid. Visitors to the Exhibition Halls can experience and operate the new environment of the Smart Grid system. Especially, LG Living Hall is designed as condominium. Visitors can stay in the LG Living Hall equipped with AMI and Smart Appliances with reservation. Real time price system has been tested in the Jeju Test-Bed. Virtual real time price signal is provided to the customers using AMI, and customers voluntarily change their power consumption. And smart appliances can be programmed to respond to the price signal automatically. However, mandatory measure was not taken in the Test-Bed. 34

35 Rolling Blackout and Emergency Exercise The 9.15 rolling blackout occurred on September 15, 2011 in Korea. The critical reason of the blackout was that the reserve was not sufficient because demand was increased too rapidly. If demand could be managed, the blackout would not occur million homes suffered from this blackout during 4hours 45minutes while 4,000MW load was rejected 11. After this blackout, the Korean government has conducted national exercise preparing for blackout twice. The first national exercise was held on June 21, As shown in Figure 1-13, actual demand was reduced by 8 per cent compared to the forecasted demand. The second national exercise was held on January 10, 2013 and the result is shown in Figure Actual demand was reduced by 10 per cent compared to the forecasted demand 11. In the two exercises, when the Korean government gave the signal about lack of reserve to the customers, they reduced their demand. This fact verifies that the information can change the demand. If the price information is given to customers using the Smart Grid, customers will respond to the information and reduce their demand 12. Figure 1-13 Result of national exercise preparing for blackout Source: KPX 11 Electimes, 9.15 rolling blackout after 1 year..., October Ministry of Knowledge Economy, Report for the power Industry & power outage response, June

36 Figure 1-14 Result of national exercise preparing for blackout Source: KPX 1.4 Main observations and concluding remarks Challenges After the Declaration of Low Carbon Green Growth as the new national vision, the Smart Grid technology of Korea has been remarkably improved through the joint efforts of the Korean government and private sectors. In order to advance to the next stage of the Smart Grid, Korean has to overcome the challenges faced as: Control tower Budget Technology development Electric Power Industry Restructuring As explained before, the Smart Grid technology is the convergence technology of power technologies and information and telecommunication technologies. Therefore, many organizations, companies, and ministries must engage with the Smart Grid industry. In this respect, the control tower supervising many parties is necessary for effective management of Smart grid resources. It is important that the control tower is able to harmonize a conflict among groups associated with Smart Grid. Now, the presidential Committee on Green Growth is playing a role of the control tower in Korea. In market terms, the Smart Grid will support a whole new range of product offerings, services, and opportunities that create value for users. Since the Smart Grid industry is a large-scale project composed of many industries, authorities, organizations and stakeholders, the Smart Grid needs a long-term support for market creation. Because the market in Korea is not matured yet, the continuing government support is still essential. Budget for building the Smart Grid in Korea can be provided from: Fundamental fund of power industry (3.7 per cent of electric price in Korea) Tax Investment of government owned companies 36

37 Investment of private companies The component technologies for the Smart Grid have been developed continuously in many countries including Korea. For the successful implementation of the Smart Grid, the development of the integration technology is also essential, because the Smart Grid is a convergence system the system. Moreover, the establishing standards for interoperability are essential not only for the implementation of the Smart Grid but also for promoting the Smart Grid market. Therefore, to advance the next stage of the Smart Grid, Korea will develop the component technology, develop the system integration technology, and establish standards without discrimination. In the initial stage of the Smart Grid, the monopolistic power industry and low electricity price in Korea are advantages of developing the Smart Grid technologies. However, the structure along with the low electricity price may be barriers to further development of Smart Grid. Recently, the Korean government has showed plans to restructure the electric power industry and secure budget for the Smart Grid. President G.H Park promised to reform the monopoly in electricity market in Korea 13. Furthermore, by adopting the real-time electricity price system, the Korean government will give consumer a cost information at any given time and a choice for usage of electricity Opportunities Since the Presidential Committee on Green Growth was established, the Korean government has made great efforts to build the nationwide Smart Grid. With these efforts, the Jeju Smart Grid Test Bed Project, which is one of the most noticeable Smart Grid project in Korea, was implemented. As the project ends in 2013, the Korean government is preparing the next stage of the Smart Grid. For successful implementation of the Smart Grid, following conditions should be satisfied: 1) Interest of people on the Smart Grid needs to be escalated. 2) An initial market has to be created. 3) Technical leadership must be increased. Jeju Island is one of the best places satisfying these conditions. The population of the island is about 584,000, and about 8,740,000 tourists visit this island each year to enjoy beautiful scenery of Jeju Island. Jeju Island is a suitable place for creating an initial market and promoting the Smart Grid. In a technical point of view, Jeju Island is also one of the best places to develop the Smart Grid in Korea. The total power demand of the Jeju Island is about 600 MW that is the largest power demand among Korean islands. As shown in Figure 1-15, the power system of Jeju Island is almost isolated from the main grid and connected to the main grid by two 400 MW HVDC systems. Thus, the Smart Grid on Jeju Island can be tested without effecting on the main grid. In addition, because the size of Jeju Island is small enough to travel all around it on a single charge, it is relatively easy to install EV charging infrastructure and to promote the diffusion of EVs. 13 The Korea Times, Will gov t break KEPCO monopoly?, January

38 Figure 1-15 Simple sketch of Jeju Island In a political point of view, it is easy to settle legal and institutional framework for the Smart Electricity Service, because Jeju Island is a special self-governing province. In addition, the island has abundant renewable energy resources such as wind and solar energies. Based on these conditions of Jeju Island, it is proposed to upgrade the Jeju Smart Grid Test Bed to the Jeju Global Smart Grid Platform. The main strategies of Jeju Smart Grid Platform are as: Declaring Carbon Free Green Island Establishing Jeju Island as a Smart Grid Hub City Installing EV charging stations all around Jeju Island Replacing official vehicle with EV Implementing Renewable Energy Generation Complex on large scale Demonstrating new Smart Grid Technologies such as fuel cell and Smart Appliance. Replacing street lights with LED Seung il Moon, Smart Grid of Korea: As a Platform of the Low-Carbon Green Growth Society, Green Growth New Engines of Growth, National Research Council for Economics, Humanities, and Social Sciences, May

39 Figure 1-16 Jeju Global Smart Grid Platform Source: Seung il Moon, Smart Grid of Korea: As a Platform of the Low-Carbon Green Growth Society, Green Growth New Engines of Growth, National Research Council for Economics, Humanities, and Social Sciences, May 2012 As shown in Figure 1-16, the platform includes various Smart Grid technologies such as: 1) smart distribution and transmission, 2) smart home, 3) smart metering, 4) DC transmission, 4) efficiently operated thermal plants, 5) smart transportation, 6) active demand response by consumer, and 7) smart renewable. And the control center will supervise the overall system. With the platform, the initial green technology market can be created, and the technology for the nationwide Smart Grid can be developed, tested, and verified. Furthermore, the platform will play a key role of standardization, and Korea will be able to establish leadership as ISGAN secretariat country The road ahead 22nd and Final Green Growth Committee under President Lee The final Presidential Committee on Green Growth chaired by the previous President held on February 2013 to evaluate the achievements of the Green Growth during the Leeadministration. During the last 4 years, the Korean government legislated for the Green Growth such as: 1) Fundamental Law for Low Carbon Green Growth, 2) Smart Grid Promotion Act, 3) Green Building Promotion Act, and 4) Green House Gas Trading Act. And organizations such as 1) GGGI, 2) GTC, and 3) Green Growth Committee were established. With effort of the Green Growth Committee, R&D investment has increased by 26.2 per cent each year and level of green technology also increased from 51 per cent to 79 per cent compared to top level of world. Lithium battery technology is ranked number one in the world and LED technology is ranked number two in the world. The committee also surveyed the public awareness for Green Growth policy. According to the survey, about 94.6 per cent of Koreans feel the seriousness of climate change and about 97.2 per cent of Koreans agree with Green Growth policy. The Presidential Committee on Green Growth has also emphasized that electricity price and water price have to be increased to reasonable level. Now, because the prices are low and does not provide incentive for conservation, it causes excessive consumption of electricity and water. To prevent inefficiency energy allocation, these prices should be 39

40 increased step by step. For low-income group, welfare should be prepared considering the suffering from the increased electricity price. And, to reduce CO2 emission, green tax will be reformed. Transport tax will be abolished and carbon tax will be introduced. Carbon tax will be used for investment of Green Growth. Also, the Committee proposed the Smart Grid as one of the Green Growth Mega Project. According to the plan, the Smart Grid Hub City Project in 7 Metropolitan Areas is expected to be accelerated. Under the new presidency The 18th Korean presidential election was held on December 19, All candidates for the presidency emphasized the Smart Grid, renewable energy, and secure power supply. Among them, Geun-hye Park, a member of the Saenuri party, won the presidential election. The new president pointed out some obstacle to developing the Smart Grid as: 1) Poor government performance compared to the plan due to uncertainty for renewable energy investment, 2) Inefficiency of resource allocation due to monopolistic structure in gas and power industry, and 3) Low demand management effects due to unreasonable electric price. Moreover, the President pledged the following policies to encourage and promote the Renewable Energies and the Smart Grid: To rewrite the Resource Map of Available Renewable Energy To establish Strategic Plan for accomplishing the National Target of Renewable Energy (2020, 2030) To construct the infrastructure for Promoting Renewable Energy Supply such as Smart Grid and Energy Storage System To reform Electric Price System for Effective Demand Management To eliminate Inefficiency of Monopolistic Structure in Gas and Power Industry To develop Robust Supply and Demand Market with Fair Competition It is expected that strong supports to the Smart Grid will be continued in the new government. President Park, immediately after inauguration as the new President in February 2013, established the Ministry of Future Creation and Science (MFCS). It is not clear whether the Smart Grid activities will belong to the MFCS, nevertheless, MFCS is expected to cover the convergence technologies based on ICT, and the Smart Grid is the convergence of ICT and energy technologies. It is possible that the Smart Grid initiatives may be moved to the MFCS. 40

42 på valfrihet och lägre elpriser. Kanske är det såväl rädslan för osäker eltillgång som viktiga relationer till den mäktiga elindustrin som bidrar till tystnaden. 2.2 Background The Japanese electricity system Ten privately own utility companies dominate the Japanese electricity grid, each with regional monopoly in practise. These utilities manage the whole process from purchase of fuel and infrastructure, to collection of fees from users. The utility companies are free to pass most costs, as well as a margin calculated as a rate of return on invested capital, on to electricity consumers. This has created an incentive for utility companies to invest in expensive capital, and low incentives to save money 15. Historically, the Japanese utilities have had a mandate to keep expanding electricity supply to keep up with societal demand. This has resulted in a capital-heavy, stable grid with relatively high electricity prices. Figure 2-1 Illustration of structure of Japanese electricity consumption (9 utility companies) Source: Adapted from (Kasama, 2013) The Japanese electricity grid is further divided into two grids with different frequencies, western Japan using a 60Hz frequency while eastern Japan uses a 50Hz frequency. There is only limited connectivity between these grids, and generally every regional utility maintains enough production capacity to satisfy the demand of its customers. The Japanese electricity consumers are separated into three groups, each accounting for roughly a third of the total energy consumption. The first is the large-scale industrial segment of consumers with contracts for 500kW or more. The second group mainly consists of multi-tenant buildings or small-sized industrial facilities. The third largest group is mostly single-household residential houses. The first group has relatively high expenses for electricity, so these have already many energy-efficiency enhancing features installed in their facilities. This group has also shown great capacity to reduce consumption when necessary. In the summer of 2011 when electricity scarcity was acute on the TEPCO grid, this group outperformed the others and achieved a maximum peak-load reduction of 29per cent, compared to the second group achieving a 19per cent reduction and residential consumers 6per cent (Swedish Agency For Growth Policy Analysis, 2012) 16 (Swedish Agency For Growth Policy Analysis, 2012) 42

43 Figure 2-2 Electricity grid and interconnection and electricity power generating capacity in 2011 Source: Swedish Agency For Growth Policy Analysis, 2012 Changing energy mix At the time of the disaster in March 2011, nuclear power was a major source of power in Japan, providing around 30per cent of the country s electricity, and the government was planning on expanding nuclear power to decrease reliance on expensive imports of fossil fuels 17. At the present stage, it is still uncertain what the role of nuclear power will be in Japan, but it is clear that renewable energy sources will become more important in the future. Japan is a laggard among OECD countries when it comes to introduction of renewable energy sources. A key challenge of Japan in developing its renewable energy supply is that the areas with the highest potential for renewable energy generation are generally those with sparse population and less energy demand. For instance Hokkaido, the northernmost of the four large islands of Japan, has a large potential for wind power but not many people live there. In order to develop bigger wind farms there proper infrastructure needs to be built to ensure that electricity can be moved across regions, something which the regional structure of the Japanese electricity system inhibits. Electricity stability has been a main goal of Japan s electricity providers, and they have achieved a grid remarkable for its stability, built open careful monitoring and control by 17 (World Nuclear Association, 2013) 43

44 the regional monopolies 18. In this context, breaking up the monopolies and introducing renewables has been opposed, as this would probably bring some degree of instability. To enhance the rate of introduction of renewables, the Japanese government introduced a feed-in tariff for renewable energy in July This tariff system, similar to that of Germany, forces electricity utilities to purchase renewable energy at set prices. The price set by the government was however significantly higher than in other countries, for example about three times that of Germany in the case of solar power. This has created a huge boost to the Japanese solar market, with Japanese banks anticipating an eightfold increase of investments in solar power facilities 19. While the new government has already lowered the set price for solar power to reflect decreasing cost of solar cells, there is still expected to be a renewable energy boom in Japan in the coming years 20. Figure 2-3 Japan s energy mix from 1971 to 2009 Source: International Energy Agency (2011) Key components for Smart Grid in Japan While the underlying concept of smart grid technology is shared globally, different regions of the world have different emphasis on components and functions of smart grids. The particularities of the Japanese smart grid concept largely reflect the underlying goals previously stated, and technology areas in which Japanese firms have a competitive edge. Smart Community and Smart House The introduction of renewable energy is a key goal of Japanese smart grid developments. The definition from the New Energy and Industrial Technology Development Organization 18 (Swedish Agency For Growth Policy Analysis, 2012) 19 (Watanabe, Sato, & Kawamoto, 2013) 20 (Maruyama & Taneichi, 2013) 44

45 (NEDO) of the Japanese government describing smart grid as a transmission and distribution grid to promote the stability of electric power supply by using ICT while introducing [a] huge amount of renewable energy 21 is an example of this focus. In this sense, the Japanese focus is quite similar to the global mainstream. However, in Japan, the smart grid concept is mostly discussed in connection with the broader concept of smart community. Smart community, which has a focus on integration of different sectors and functions, incorporates production and distribution of heat, communication and even sometimes food or other biomass products. In this context, it should be noted that the Japanese utility grids other than electricity, having been long privatized, are not well developed compared to many Western countries. Hot water is very seldom distributed, and there exists many administrative and legislative barriers to building distribution infrastructure. The Japanese gas grid is even in comparison to its electricity grid fragmented. There is no linkage to the Asian mainland, rather there is a number of non-connecting gas grids each served by a port for international import of LNG 22. Gas is widely used for heating, but outside of metropolitan areas, most urban areas are not covered by gas grids. The smart community concept also contains a focus on resilience in face of natural disasters. Because of the traumatic experience of 2011 and the following energy crisis, a focus on resilience is more relevant than ever in Japan. Thus there is a very strong focus on modularity and localization of energy production in most smart community projects. Another linked concept is smart house, which is often brought up in connection with smart grid and smart community in Japan. A smart house means in Japan a house with functions to lower carbon emissions. This is not limited to only the building itself, but incorporates appliances, management systems, attached renewable energy sources and sometimes also vehicles. Mostly smart house also incorporates an element of communication between different appliances, the resident and society outside, so as to make the whole home a more carbon-smart module. In this sense, smart house is used interchangeably with House Energy Management System (HEMS, see below). The smart house concept is very attractive for Japanese electronic appliance producers, who have a competitive edge in energy-saving technology as well as wireless communication. Also, it is attractive for real estate developers, like for example Sekisui House Co. Ltd., who can access new lucrative niche markets through constructing pricey smart houses. Energy Management Systems (EMS) and smart meters Many Japanese companies and projects target creating Home Energy Management Systems (HEMS), Building 23 Energy Management Systems (BEMS), Factory Energy Management Systems (FEMS) and overarching Community Energy Management Systems (CEMS). HEMS is in Japan often equated with the smart house concept, a very broad umbrella for different technologies used to reduce and to make more efficient the use of energy in residential buildings. HEMS includes relatively simple technology such as switchable sockets and dimmable lights as well as capital-heavy sophisticated technology such as residential energy storage batteries, residential PV or solar water heaters, residential EV 21 (Shinkawa, 2010) 22 (Energy Delta Institute) 23 Mainly relates to commercial or public-service facilities such as offices, schools or hospitals 45

46 charges and electricity consumption monitors 24. In the most restricted sense, HEMS is the hardware and software system that links all of these functions together. Japanese electronics suppliers have a long history of engagement with HEMS technology, and have developed national standards for wireless communication between HEMS units through the ECHONET consortium (see below). The role of the smart meter is to visualize energy usage for consumers. Being a key to large-scale demand-response, smart meters can play a big role in stabilizing grids dependent on renewable energy or facing natural disasters. Energy Storage A main focus in all Japanese smart grid and smart communities projects is the importance of energy storage. After the 3/11 accident when energy shortage was a fact the stakeholders in Japan no longer believes that it is enough to create energy to meet the demand. Energy also needs to be stored, both for resilience against disasters as well as to stabilize fluctuating energy supply from renewables such as PV and wind turbines. Energy storage have so far mainly been used as an emergency energy source but in the smart communities demonstrated by the Japanese government in co-operation with Japanese companies, HEMS have been equipped with batteries to ensure that energy consumption can be cut off during peak demand hours 25. The Japanese government has high ambitions for the energy storage market, and hopes to capture 50per cent of the global market. Japanese companies have a competitive edge already in manufacturing sodium sulphur, lithium ion and redox flow batteries. In a first-ever large-scale trial in Yokohama, there has also been installed a new system for integrating dispersed residential and large-size batteries into a unified source of back-up power for the grid 26. What is also gaining interest in Japan is the Vehicle to Home (V2H) concept where EVs are used as mobile storage batteries that can be connected to the energy system of the house, and the Vehicle to X (V2X) concept where EVs can be connected as battery for also industrial and commercial facilities Main Actors and Networks Overview Fig 2-4 gives an overview of the main collaborative platforms of the Japanese smart grid innovation system. A detailed description of the actors follows. One cluster is the smart house and HEMS-related collaborative platforms. These focus on standardization and commercialization of smart appliances and residential units. The actors most engaged in these networks are the electronics producers, who stand to gain much from a developing domestic and global market for such appliances. The electricity utility companies are also active here, as it is probable that they will be forced to deploy HEMS, and the technology on this side of the smart community spectrum is the least intrusive on their grids. Another cluster is the large-scale domestic demonstration projects, notably the Smart City and Future City initiatives. Here major corporations, local governments, academia and the government collaborate to produce the most impressive and far-reaching applications of 24 (Tokyo Cosmos Electric Co.,Ltd.) 25 (EnergyTrend, 2012) 26 (Uetake, 2013) 27 (Sumitomo Corporation, 2012) (Hirai, 2013) 46

47 smart grid technology. Importantly, the electricity utility companies are not very present in these platforms. A similar cluster is the overseas demonstration projects, aiming at opening foreign markets for Japanese smart grid technology. Lastly, JSCA is an important platform for enhancing the development of Japanese smart grid technology, both domestically and for accessing foreign markets. The Japanese government is a member of the International Smart Grid Action Network (ISGAN) and has signed cooperation agreements with South Korea and USA on facilitating international standardization. Figure 2-4 Overview of main actors and collaborative networks within Japanese smart grid innovations The Ministry of Economy, Trade and Industry (METI) The Ministry of Economy, Trade and Industry (METI) is in charge of policy planning on smart grid innovation. METI is in charge of a very broad policy area, and has strong links with the Japanese private sector. New Energy and Industrial Technology Development Organization (NEDO) Under METI is the New Energy and Industrial Technology Development Organization, (NEDO) which is Japan s largest public R&D funding and management organization. NEDO was formed in 1980 to promote development and introduction of new energy technologies in Japan. The budget for NEDO for fiscal 2012 is SEK 8,4 billion (JPY Exchange rate of 1 SEK = JPY, from 20 March 2013 used henceforth 47

48 123.6 billion) 29. Typically, NEDO projects go on for three to five years. Before year 2000, NEDO-supported research on electricity grids focused on how to incorporate single renewable energy producers. There was a time-lag between Japanese policy promoting the construction of renewables, and promotion of the technology necessary to incorporate them into the Japanese grid. During the period , NEDO focused on inclusion of large-scale or multiple renewable energy producers. After 2010, NEDO has turned to a broader focus on the Smart Community concept, with more attention to EMS and Smart Home appliances 30. Japan Smart Community Alliance (JSCA) In April 2010 the Japan Smart Community Alliance (JSCA) was formed by METI with NEDO as the secretariat. The aim of JSCA is to encourage public and private sector discussion of common goals such as global standardization and sustainable system development. The alliance also encourages collaboration between Japanese companies in order to achieve competitive advantages in the global market for smart grid. In February 2013, 408 companies were part of the organization, and Toshiba is currently the president of the alliance 31. Under the president there is a board that consists of other large well known Japanese corporations such as Hitachi, Mitsubishi Electric, Panasonic, Tokyo Gas and Toyota to name a few. METI is still very involved in the organization but the aim is for METI to stop the involvement and for JCSA to be an organization of only corporations. METI does not support JSCA financially and the organization is completely funded by participation fees. Within JSCA four working groups have been created to address different aspects. International Strategy Working Group Identifies domestic and international smart grid trends and study and develop strategies to support Japanese companies in their international deployment activities International Standardization Working Group Aim is to achieve international standardization, collaborates with organizations in Europe and USA. Roadmap Working Group Promote technology development as part of social system Smart House & Building Working Group Aim to commercialize smart house technology Municipalities Japanese municipalities ( 地 区 町 村 ) are essential stakeholders in the development of smart grids in Japan. After 3/11 Japanese municipalities have grown increasingly interested in smart community and smart grid technology, to ensure a resilient society in face of natural disasters. The Japanese smart community vision includes an increased importance of the local level, so municipalities play a key role in most of the larger smart grid developments in Japan. Municipalities have therefore also initiated collaborative efforts with academia and industry, to develop smart grid solutions. An example of this is the project initiated by Toshima Ward in Tokyo Metropolis, which engaged the AES Center of the Tokyo Institute 29 (New Energy and Industrial Technology Development Organization, 2012) 30 (Morozumi, 2010) 31 (Japan Smart Community Alliance, 2013) 48

49 of Technology and Tokyo Gas Co., Ltd. to integrate a new commercial development into a smart energy grid 32. Public opinion Decision makers on the municipal level in Japan are very sensitive to local popular movements including NIMBYs (Not In My Back Yard movements against infrastructure development that is accepted to be good for society, but opposed because of being located too close to homes of the protesters). This makes local administration less likely to speak loudly of planned smart grid developments if they include infrastructure investments. However, municipalities in the disaster-struck areas and municipalities with many affluent, eco-aware citizens are more likely to be enthusiastic about developing and showcasing smart grid technology. Electric and electronic industry Most of the smart grid developments in Japan are driven by major conglomerates, like Hitachi, Toshiba and Mitsubishi, who have access to expertise in various different aspects of smart grid technology 33. Utilities The regional utility monopolies in Japan still control most parts of energy production and distribution in Japan. TEPCO, the largest of the utilities, has not been very enthusiastic about smart grid developments, arguing that the Japanese grid already has the stability and infrastructure sophistication necessary 34. Especially after the March 11 disaster, the electricity utility companies in Japan have very limited funds, and have pulled out of some smart-grid related activities. The smart community concept offers a way to open up for more development and new markets for other utilities. On the other hand, gas utilities such as Tokyo Gas Co., Ltd. are active players in smart community development, especially when involving residential fuel cell electricity/heat cogeneration, an area that can significantly increase the importance of gas as a utility in Japan. Local Smart Community Associations In some areas, local associations for business and research institutes involved in smart grid or smart house developments have been arranged. One example is the Yokohama Smart Community association. This is an association of local businesses who work in collaboration with the smart grid initiatives, and act as suppliers for some of the corporations involved 35. As most smart grid technologies are being developed by large companies, associations like these represent an opportunity for SMEs to also be involved, and local governments investing in smart grids can use them to ensure some economic windfall from investments stays in the region. 32 (Hirai, 2013) 33 (Office of Energy and Environmental Industries of the USA Department of Commerce, 2012) 34 (Dasher, 2012) 35 (Uetake, 2013) 49

50 ECHONET Consortium The Energy Conservation and Homecare Network (ECHONET) Consortium has been working since 1997 in developing standards for software and hardware for remote control or monitoring of home appliances 36. As of January 2013, the Consortium has eight core members representing some of the largest electronics producers in Japan such as Panasonic, Sharp and Toshiba, as well as Japan s largest utility company, TEPCO 37. HEMS Alliance HEMS Alliance, launched in July 2011, is an alliance of 10 companies including most of the core members of the ECHONET Consortium, including TEPCO. The goal of HEMS alliance is to assist in the development and marketing of HEMS systems 38. HEMS Alliance grew out of the shared difficulties of the companies in carrying out a project demonstrating the efficiency of PV, commissioned by the Agency for Natural Resources and Energy, a body under METI. For security and liability reasons, the companies realized that a common open platform was necessary, as well as a regulatory framework to deal with cases in which one component of a HEMS malfunctions 39. Academia Japanese academic and research institutes are much involved in Japanese smart grid initiatives, especially the more large-scale projects. At Tokyo Institute of Technology, the International Research Center of Advanced Energy Systems for Sustainability (AES Center) provides a platform for collaborative research together with both public and private stakeholders 40. AES Center has teamed up with four major Japanese corporations to create research units focusing on energy for transportation (ENEOS), CEMS and HEMS (NTT), heat and electricity cogeneration (Tokyo Gas) and vehicle-to-grid or house systems (Mitsubishi Corporation). Earlier AES had the same kind of collaboration with TEPCO, but this has been withdrawn as TEPCO lacked funding after the disaster in AES Center also works with many other stakeholders, including other corporations and municipalities, to create smart grid solutions. 2.3 Why promote a smarter grid? Driving forces The rationale for the Japanese government and businesses to invest in smart grid technology can be divided into three broad objectives. To achieve energy security and resilience To increase the amount of renewables in the Japanese energy mix To find a new growth engine and new business opportunities for Japanese firms. All these goals relate to fundamental challenges the Japanese economy and society is facing. These are most importantly disaster vulnerability, high dependency on foreign en- 36 (ECHONET Consortium) 37 (ECHONET Consortium) 38 (KDDI, 2011) 39 (Semiconportal, 2011) 40 (Hirai, 2013) 50

51 ergy, public pressure for a new energy mix, a sluggish economy and high economic competition. It is therefore not surprising that the Japanese government considers smart grid technology a priority area. While Japan has always been a country plagued by natural disasters, the 2011 earthquake and following tsunami, nuclear crisis and energy crisis brought disaster resilience and energy security on the agenda in Japan more strongly than ever Need for change Establishing smart grids in Japan has not been easy because of the structure of the utility market 41. Starting in 1995, METI launched a series of reforms to end the monopoly and liberalise the market, and the Japanese Energy Stock Exchange was introduced in The reform would enable retail competition, but in practice, however, only 3,6 per cent of the electricity was generated by other suppliers then the ten regional monopolies in Following the disaster in March 2011, the energy system revealed its weaknesses. The regional structure of the system hinders transmission of electricity throughout different regions. Due to the strong price control, there are little alternatives to guide user demand by tariffs, and the system has limits for how it digests changes in energy supply, eg from renewable sources. The energy policy is now a top-priority policy area in Japan, and a number of strategies have been drawn up to address Japan s acute problems of energy security. Many projects were already aiming at developing smart grid technology. The 2011 disaster gave extra weight to these projects and sometimes changed the focus. For example the Yokohama Smart City Project shifted focus slightly from integration of PV energy towards energy conservation and integration of energy storage units. As Japanese businesses and households had to change electricity consumption patterns due to lack of supply in the months after the Fukushima accident, there was a renewed interest from different actors in solutions for energy saving 42. Table 2-1 Energy strategies DPJ government New Growth Strategy Strategic Energy Plan (June) Great Eastern Earthquake and Fukushima disaster (March) New Growth Strategy Revision (June) The Rebirth of Japan (Dec) Comprehensive Strategy for the Rebirth of Japan (July) Innovative Strategy for Energy and the Environment (Sept) New LDP government (Dec) Revisions of strategies Direction to reform Electricity System (Q1) Upper house election. New economic growth strategy expected (July) In June 2010 the Ministry of Economy, Trade and Industry (METI) announced the new Strategic Energy Plan of Japan. The Plan placed a new emphasis on restructuring the structure of the Japanese energy industry, aiming for Japan to fundamentally change its energy 41 (Ling, Sugihara, & Mukaidono, 2012) 42 (Uetake, 2013) 51

52 supply and demand system by To achieve this goal, the Plan envisions the introduction of various smart grid features, such as: Cross-sectional policy efforts and consideration of special zones for the promotion of smart grid development, Demonstration projects in Japan and overseas, Strategic international standardization, and Promoting the development and installation of smart meters and energy management systems with the aim of reaching all electricity users in Japan in the 2020s 44. After the disaster in March 2011, a new growth strategy called Rebirth of Japan was formulated, decided upon by the cabinet in December. The Rebirth of Japan strategy included the following goals directly relating to smart grid innovation: Enhancement of overseas deployment of Japanese infrastructure systems, such as smart grids Establish smart communities in the disaster-struck areas 45 In July 2012, the Comprehensive Strategy for the Rebirth of Japan was announced, which gave more detailed targets and policy measures related to the Rebirth of Japan strategy. The Comprehensive Strategy envisions Japan as employing 1.4 million in the environmental industries, capturing 50 per cent of the global electricity storage battery market, and becoming a major exporter of infrastructure 46. To achieve this, the Comprehensive Strategy calls on the government to Achieve 80per cent of total energy consumers use smart meters by 2017, Introduce dynamic pricing systems, and Work for international standardization of EMS technology and storage batteries 47 The Rebirth of Japan initiated the development of a new strategy also to decentralize the Japanese electricity system and better promote renewables, which was launched in September 14, 2012 as the Innovative Strategy for Energy and the Environment 48. This strategy called for Introducing HEMS/BEMS and market mechanisms to reduce peak load Utilizing the outcome of demonstration projects to achieve energy-efficiency Government efforts to create opportunities and remove obstacles for renewables to connect to the electricity grid. Until the March 11 disaster, the Japanese government decided in agreement with the 10 utility companies what energy mix would be suitable for Japan. The Innovative Strategy aims for the break-up of this pattern of governance to a more market-oriented process, in order to allow for renewable energy power generation companies to be able to become more competitive 49. Since December 2012, Japan has a new government headed again by the Liberal Democratic Party. This will influence the overall strategy, and in particular there are question 43 (Ministry of Economy, Trade and Industry, 2010) 44 (Ministry of Economy, Trade and Industry, 2010) 45 (National Policy Unit, 2011) 46 (National Policy Unit, 2012) 47 (National Policy Unit, 2012) 48 (National Policy Unit, 2012) 49 (National Policy Unit, 2012) 52

53 marks on the unbundling on generation and distribution of energy and the plan for change of energy mix. So far (March 2013) the direction of Japanese energy policy is uncertain, and the change in government has of yet not influenced the direction of Japanese smart grid initiatives to any greater extent. 2.4 How to promote a smarter grid Government measures Grid reforms The Electricity System Reform 50 is a three-step action plan, managed by METI, to liberalise the electricity market. The first step is to establish a new entity to secure nation-wide transmission operation as soon as possible, which according to plan is in The next step is to extend the retail competition to include residential sector, due in Until now, it has only been large consumers such as industries and real estates (e.g. supermarkets, office buildings) that have had the opportunity to choose. The final step, planned for is to activate generation competition and to unbundle the transmission/distribution sector using a TSO concept comparable to e.g. Sweden. Introducing smart meters with subsidies and standardisation Introducing smart meters is one of the key strategies in the Japanese smart grid/community development. Many of the governmental demonstration projects involve installing smart meters at homes so that the citizens can watch their energy consumption more closely. Between May 2010 and February 2011, METI operated an investigation committee to consider framework for promoting and utilizing smart meters. The final report was delivered in February 2011, but the committee was reconvened after March 11 and instructed to have concentrated discussion to consider domestic standardization of smart meters and HEMS, as a tool for energy conservation and to nurture as a new and upcoming industry. The same year, METI introduced subsidies for homeowners to install HEMS. For two years through fiscal 2013, the government is offering SEK (100,000 yen) subsidies for home energy management systems meeting its standards. All devices selected as eligible for the national subsidy are Japanese products using ECHONET standards 51. Yokohama, as a part of its Smart City and Future City projects, has also introduced additional subsidies for a limited amount of residents 52 TEPCO, under the instigation of the government, is due to deploy 17 million smart meters throughout its service area before 2020, and to invite tenders from both domestic and international firms. The TEPCO smart meter scheme, estimated to be worth SEK 20 billion (JPY 300 billion), will be based on an international standard and is likely to expand the Japanese market for smart meters rapidly. It has invited some interest from foreign companies such as the American firm Itron Inc 53. It has been indicated in Japanese press that the government intends to use the TEPCO roll-out of smart meters to develop a national smart meter requirement Agency for Natural and Energy Resources, METI, (Ministry of Economy, Trade and Industry, 2012) 52 ( 横 浜 グリーンパワー, 2012) 53 (Kawakami & Akira, 2012) 54 (The Global Smart Grid Federation, 2012) 53

54 The standardization process of smart grid has been on the agenda of the Japanese government s for a long time. For both smart grid and HEMS, standards are a fundamental tool in achieving the desired interoperability. A strategy group was founded by METI in 2009 and in January 2010 it released a road map on Smart Grid Standardization where 26 focus areas were chosen, including distribution system control equipment and EV charging infrastructure 55. In March 2012 Japan signed an agreement with US on increased cooperation and information sharing for international standardization on smart grids 56. Several companies are responding to the governmental incentives 57, and in spring 2013 there will be several systems launched that meet the standard requirement from the government and cost equally to the subsidies. In a new system delivered by IBM Japan Ltd. and Tama Home Co, electricity, gas and water usage data is consolidated and managed on a cloud. Users can check their data anytime via smartphone or tablet. Lixil Group Corp. and Sharp Corp., will offer a system that can e.g. determine whether to use solar power or gas to heat up water. As mentioned, there has been collaboration on standardization on HEMS on-going since 1997 within the ECHONET Consortium, and in the HEMS Alliance since ECHO- NET s main accomplishment is the communication protocol ECHONET-Lite for smart house appliances, which has been adopted by major Japanese electronics producers. There are already many ECHONET-ready appliances in Japan, for example 10 million airconditioning units, which could potentially be linked to an ECHONET-using HEMS and CEMS 58. METI is actively supporting ECHONET-Lite, and opened in 2012 an ECHONET test centre at the Kanagawa Institute of Technology, available for Japanese SMEs wanting to test ECHONET-Lite appliances. In collaboration with JSCA, METI has also decided to champion ECHONET-Lite as a global standard for smart home appliances and smart meters. ECHONET itself is also trying to promote the Japanese standards abroad, so as to improve the international competitiveness of Japanese products. However, the Japanese standard has been attacked for being overly insular, and risks pushing Japanese manufacturers into a separated technological ecosystem in a similar way to what happened with mobile phones earlier Demo- and pilot projects Renewable energy During the period NEDO promoted domestic projects aiming at developing grid-connecting technologies for renewable energy projects. Some examples are a clustered PV demonstration in Ota City, a mega solar project in Wakkanai, a wind power stabilizing demonstration in Tomamae, micro grid demonstrations in the Aichi, Aomori and Kyoto prefectures and power quality management facilities in the Gunma and Miyagi prefectures. Smart Cities In 2010 four large scale pilot projects were started by METI in different areas of Japan. These were called Next-Generation Energy and Social Systems Demonstration Areas, 55 (CEN/CENELEC/ETSI, 2011) 56 (New Energy and Industrial Technology Development Organization, 2012) 57 Nikkei, March 19, 2013, Short news Growth Analysis week 12, (International Electrotechnical Commission, 2011) 59 (Global Energy Policy Research, 2012) 54

55 later known as Smart Cities. The budget for the Smart City project in 2011 was SEK 1.23 billion (JPY 18.2 billion). In addition to the smart grid related projects by METI, projects within other ministries were also to be incorporated such as communications, environment, agriculture and forestry 60. The Smart City projects focus on creating evidence for the practicability of different smart grid technologies, and therefore includes many different social experiments to measure consumer response to technology. The Smart City projects are all headed by a coordinating corporation, which receives support from METI and coordinates with other partners 61. The Toyota City project focuses on the household sector, and aims to introduce a variety of eco-smart alternatives for residents, as well as incentives to use them. The aim of the project is to ensure maximize reduction of CO2 emissions through citizen involvement. However, most of the activities have so far concentrated on installation of various smart grid services. One a compact EV share-car scheme accessed via a smart phone application developed by Toyota 62, which is connected to a CEMS and a battery power storage unit, which allows the system to avoid using the grid at peak demand hours 63. The Kansai Science City project aims at developing HEMS and BEMS connected through a CEMS, as well as EV charging facilities connected to the smart grid. The project has also extended to non-residential consumers of electricity, such as hotel guests. Currently, a test project is running at a hotel, where 5 designated Eco-Rooms are equipped with energy and heat monitors, as well as a desired consumption target, that the lodger is asked to keep within. This project aims to measure the potential of visualization of consumption and grid status in reducing electricity consumption 64. The Kitakyushu City project also aims at setting up HEMS, BEMS and CEMS, and is heavily focus on visualization and data connectivity. The Kitakyushu grid operates a small dynamic pricing experiment, including 230 households and 50 offices. Within this trial, a smart phone application linked to the CEMS has been established, which can provide consumers with real-time price information even when not at home, and features a power saving ranking table. Preliminary results of the trial showed that most users checked the application at least once per day during the first two months of the trial 65. The trial also tested security systems to protect the privacy of consumers. 60 (Ling, Sugihara, & Mukaidono, 2012), (Ministry of Economy, Trade and Industry, 2010) 61 (Uetake, 2013) 62 (Japan Smart City, 2012) 63 (Japan Smart City, 2013) 64 (Japan Smart City, 2012) 65 (Japan Smart City, 2013) 55

56 Figure 2-5 Example screens from the Kitakyushu City smartphone application Source: Japan Smart City The Yokohama Smart City Project aims at introducing energy management systems for homes, apartment blocks, commercial buildings as well as factories, and to introduce overarching CEMS. PV cells, storage batteries and EVs are also being introduced to test the system s adaptability to energy fluctuations. The project incorporates areas within the central business district of Yokohama, as well as suburban and peri-urban areas 66. Included in the Yokohama project are also energy management systems incorporating whole apartment blocks, including common areas as well as the HEMS of each apartment, which is significant as most technology developed so far focuses on isolated residential houses, while many Japanese live in apartment blocks 67. The project will also start a demonstration project in 2013 involving 10 private households using EVs linked to HEMS using V2H technology, allowing EV batteries to be used for household consumption. Future City Projects The Future City 68 initiative was one of the 21 National strategic projects of the New Growth Strategy that the Cabinet approved in June The aim of this initiative was to tackle various issues focusing on urban sustainability, green innovation and Japan s aging society problem 69. The initiative is being run by the Regional Revitalization Office, and collaborates with a wide range of governmental departments, academic organizations, private corporations and local governments. 11 cities were chosen and 7 of them incorporate smart grid developments as a core goal. The initiative also overlaps with the Smart City projects in that Kitakyushu City and Yokohama City are both receiving funds from both programs. Most of the cities participating in the initiative were severely hit by the March 11 disaster, and thus parts of the initiative are connected to Japan s recovery efforts. 66 (Japan Smart City) 67 (Uetake, 2013) 68 In Japanese 環 境 未 来 都 市, literally Environment Future City 69 (Public Relations Office, Government of Japan, 2011) 56

57 The Kesen Region, an area that was struck by the tsunami following the earthquake, is constructing a mega solar power plan, distributed power generation and storage facilities and a smart grid-connected transportation system, to ensure a resilient power grid in face of natural disasters 70. Iwanuma City in Miyagi Prefecture is also incorporating a localized PV grid with storage capacities as part of a wide revitalization strategy 71. The Kashiwanoha Campus City project in Chiba prefecture is of special notice, as the real estate developer Mitsui Fudosan Co., Ltd., is leading the project with a clear commercial interest. This project focuses on a rural area with significant urbanization pressure because of the recent establishment of campuses for the two major national universities, the University of Tokyo and Chiba University. Mitsui Fudosan is building smart-grid-integrated residential and commercial facilities in this emerging urban centre, in collaboration with the two universities and the municipalities, with the aim of increasing land and property prices 72. If this project emerges as economically successful, it has the potential of stimulating more private investment in smart grid development in Japan. Energy Storage Japan is at the top of the world s leader in energy storage and battery technology development. Besides large efforts on the research and development as such, Japan has also been asserting itself in the standardization of energy storage. The Japanese government in cooperation with Toshiba and Hitachi managed to secure the right to chair the International Electrotechnical Commission technical committee on electrical energy storage, which is set to develop the international standards for smart grid energy storage units. The committee is scheduled to hold its first international meeting in summer Business development and export promotion Private Sector Smart Communities Some private organizations have also eyed holistic smart grid projects with the intention of making a profit, in a similar way to Mitsui Fudosan Co. Ltd. in the Kashiwanoha Campus City project, described in the previous sector. Two of the most interesting ventures manifest the multidimensional stakeholder pattern for smart grid technology and includes a consumer electronics producer and a real estate developer. Panasonic is an electronics company that has more expertise on the consumer side of smart grid technology than on the grid and energy production side. However, the company has a competitive edge in creating sophisticated and energy-efficient home appliances and has therefore a strong interest in smart grid development. It has spearheaded the Fujisawa Sustainable Smart Town 73 in Kanagawa prefecture, together with Fujisawa City and 11 other partner companies 74. This project, to be operated as an individual company, is aimed at making a profit, and will provide residents with various services within different areas energy, security, mobility and healthcare. Teriha Smart Town is a residential development being constructed by Sekisui House Co. on Teriha Island by Fukuoka City, Fukuoka prefecture. This suburban-style development 70 (FutureCity) 71 (FutureCity) 72 (Hirai, 2013) (Japan Today, 2012) 57

58 features detached houses equipped with HEMS, EV charging infrastructure, PV panels, fuel cell generators and batteries, all connected to a CEMS and can be interfaced with a smartphone app. The selling price of these houses is projected to average at around SEK 4 million (JPY 60 million) 75, considerably higher than the average price for similar newly built housing in the area. Export opportunities One of the goals for smart grid development in Japan is to be able to export smart grid technology, energy management systems and smart house technology. To assist this goal, NEDO is conducting several smart community demonstration projects abroad, showcasing various Japanese technologies for creating a low carbon society. The aim of the projects is to adapt the technologies and systems to environments outside of Japan, to ensure that Japanese products will fit climactic, social and infrastructure conditions outside of Japan. In addition to preparing for export of the system, NEDO conducts projects abroad because Japanese utility companies and Japanese regulations tend to be very strict with regulating the grid for any experimental reasons. In some cases of projects abroad, NEDO has been awarded much freedom in introducing new components to the grid, in exchange for promises of future investment in the region affected. Los Alamos and Albuquerque, New Mexico, USA The projects in New Mexico are carried out as collaboration between NEDO, State of New Mexico government and two laboratories operating under the authority of the US Department of energy. NEDO has budgeted SEK 325 million (JPY 4.8 billion) for the five year fiscal period , and has selected 19 Japanese companies that will demonstrate smart grid and smart house projects at the Los Alamos site, and 9 companies that will demonstrate commercial smart grid applications at the Albuquerque site 76. The project in Los Alamos is a one of the most advanced smart grid demonstration sites in the world for supply and demand control, and includes renewable energy storage technology as well as smart grid and smart house applications. The smart grid project is joint project between the Los Alamos County Department of Public Utilities, METI as well as major international corporations 77. Construction was completed in 2012 and full-scale operations started in October the same year. To illustrate the potentials of smart grid and smart house technology in face of energy fluctuations, a micro-grid powered by up to 75per cent by PV energy, power storage batteries and a demonstration smart house has been installed by NEDO. The project in Albuquerque is to link an existing three-story commercial building with a micro grid, including PV generators, a gas-engine generator as well as a battery system. The building itself will include various demand-response applications, focusing on airconditioning appliances, to simulate how demand-response could operate for commercial consumers 78. It is NEDO s hope that the projects in New Mexico will contribute to the dissemination of Japanese smart grid and smart house technologies, and contribute to international standardization (Sekisui House, Ltd.) 76 (New Energy and Industrial Technology Development Organization, 2012) 77 (Los Alamos County) 78 (Tokyo Gas, 2012) 79 (New Energy and Industrial Technology Development Organization, 2012) 58

59 Figure 2-6 NEDO smart grid demonstration in Los Alamos Source: (New Energy and Industrial Technology Development Organization, 2011) Malaga, Spain The Japan-Spain Innovation Program, founded by NEDO and the Centre for Industrial Technological Development of the Spanish Government in 2008, aims to promote a smart community demonstration project in Malaga, Spain. The project involves a consortium of Japanese and Spanish companies, including Mitsubishi Heavy Industries Ltd, Mitsubishi Corporation and Hitachi Ltd. The project focuses on establishing EV charging infrastructure as well as a power system able to stabilize the power supply for EVs 80. Other projects NEDO also has a project in Hawaii that focuses on creating an island grid model, a project in China, Gongqingcheng for exploring advanced smart community applications in small and medium sized cities and a project in Lyon where the focus lies on BEMS, an EV sharing system and a CEMS. NEDO has also had smart grid-related projects in France, Germany, United Kingdom, Singapore, Malaysia, Vietnam and India. Overseas Feasibility Studies for Emerging Markets. In March 2012 METI launched a program of supporting private companies in conducting feasibility studies on deploying the Japanese smart community concept abroad, with a focus on emerging economies. 18 projects were selected, mostly situated in East and South-East Asia but also including Turkey, Romania, Saudi Arabia and Australia. The hope of the Japanese government is that the dialogues started through these feasibility 80 (New Energy and Industrial Technology Development Organization, 2012) 59

60 studies will help efforts to export Japanese infrastructure solutions abroad, especially in emerging countries in Asia 81. Some of these studies have proceeded into becoming NEDOfunded demonstration projects, such as the Smart Community Demonstration Project in Java, Indonesia, in which Sumitomo Corporation, Fuji Electric Co., Ltd., Mitsubishi Electric Corporation and NTT Communications Corporation will demonstrate Japanese smart grid technology and FEMS in an industrial park in the suburbs of Jakarta 82. The Japan International Co-operation Agency (JICA), Japan s official development assistance agency, and JBIC, an affiliated public financial institute for development and export loans, have both some involvement in the smart-grid efforts directed at developing countries. JICA has signed a partnership with Yokohama City s Y-PORT institution 83, which aims at sharing Yokohama s urbanization experience with other rapidly growing Asian and African cities 84. Already, JICA and Y-PORT have liaised with the city of Da Nang in Vietnam to visit Yokama s smart grid facilities. Japan Business Federation has also argued for more yen loans to smart-grid projects in developing countries that are trying to introduce renewable energy, including in Africa Consumer engagement Consumer engagement with smart grid technology in Japan is generally thought of as consumers investing in and using the technology. So for example the Yokohama Smart City Project mostly talks of consumer engagement in terms of number of private households installing HEMS 86. A recent survey by Accenture identified Japanese electricity consumers as some of the most cost-conscious in the world 87. Indeed, cost seems to be a determining factor for consumer interest in smart grid technology. In the case of Yokohama, cost mattered much for both private households and companies in joining smart grid activities. The introduction of new subsidies from the central government made it much easier for Yokohama city to find partners interested in using HEMS and BEMS 88. There is therefore much more involvement of suppliers and city authorities in the smart grid activities. At the same time, there seems to exist a limited market for involving consumers through the sale of high-cost cutting-edge solutions, such as the Teriha project of Sekisui House. As awareness is gradually growing about what HEMS and smart house mean in Japan, probably because of the on-going energy crisis and advertising from suppliers, consumers are growing more interested in investing in HEMS and other smart grid technology. In the case of Yokohama, the city is therefore now considering how to raise more awareness about smart grid as a whole, and try to make citizens more engaged on energy saving on the community level 89. As the success of the energy saving awareness-raising campaign after the Fukushima accident showed, the Japanese society has the capacity to mobilize its citizens and corporations to change electricity consumption behaviour. If local communities both develop technical solutions and awareness of importance of community-wide 81 (Ministry of Economy, Trade and industry, 2012) 82 (Sumitomo Corporation, 2012) (Japan International Cooperation Agency, 2011) 85 (Keidanren, 2013) 86 (Uetake, 2013) 87 (Accenture, 2010) 88 (Uetake, 2013) 89 (Uetake, 2013) 60

61 engagement on energy saving, a new form of consumer engagement in smart grids could emerge. Making smart grid profitable for the consumer Many of the smart grid projects, especially within the Smart City framework, are designed as social experiments in which consumer response to different incentive systems is tested. In this setting, mock pricing schemes have been initiated to emulate a pricing system based on supply and demand on the grid. These mock prising schemes have been funded by the government. Preliminary from the Keihanna Smart City Project has singled out critical peak pricing as the most effective incentive method for households to do load shifting or peak shaving, and this has been found much more effective than just visualization of consumption. As Japan s plans for de-bundling of the energy market goes on, the findings from these social experiments might add weight to the argument for deregulation. The findings will also indicate the potentials for countries such as Sweden where dynamic pricing is already possible. There are also hopes from some actors in Japan such as METI that spin-off services connected to smart grid will make smart grid investments more profitable for consumers. Many spin-off businesses are expected to emerge as the communications system and basic platform of smart grid is installed. Especially, the data and communication capabilities are expected to be of additional use for customers. Examples are security services or electrical hardware maintenance services responding to electricity consumption information provided from smart homes 90. In the area of health and security, real estate developers like Sekisui House are already using automated surveillance and service systems. These components could easily be linked to an energy management system, which could expand the meaning of smart grid and smart house in Japan even further. 2.5 Main observations and concluding remarks Challenges The issues of energy security and meeting climate goals are key problems in Japan, and will be at the centre of attention of the political establishment for a long time. Japan needs to prepare and develop its electricity infrastructure on one hand and allow introduction of large-scale renewable electricity in order to support targets for electricity stability, independence from imported energy and reducing green house gases. This will require a realignment of its policy targets, liberalisation of the energy market, and incentives for investments in the infrastructure needed. The plans for liberalisation and unbundling of production/transmission, that took place in Sweden over 20 years ago, is planned for , and even this timeframe is under debate at present due to the recent change in government. Today, the legal, political and economic complexities of the Japanese grid make a far less inviting market for new entrances. Another major challenge for smart grid development is how to make sure that Japanese consumers see an economic rationale for investing in smart grid technology. As METI is well aware, the Japanese consumer will not respond well to a hike in electricity prices, with no other value added than a lesser carbon footprint. Therefore, it is important that the proliferation of communicating devices in Japanese consumers home will create a market for data and data-related services, so that consumers will find additional benefits to using 90 (Kasama, 2013) 61

62 smart technology. To achieve this goal, standardization and openness of communication platforms and protocols such as ECHONET-Lite must be continued. On the other hand, security and privacy is an important issue, which is not yet being fully discussed. Moreover, the electricity pricing system in Japan must be reformed so that consumers can gain more from load shifting or peak shaving. Standardization is regarded as a key issue in Japan, but the balance between national and international standardization must be kept to avoid Japanese smart grid technology becoming another Galapagos, as happened earlier with cell phones. It is worth noting that even though HEMS using the ECHONET-Lite protocol is only rarely sold in Japan, there is already millions of ECHONET-Lite ready air-conditioners installed in homes and offices. If an alternative communication standard for residential smart products appears internationally, Japanese manufacturers will face difficult choices. A major challenge that many actors name is the persistence of administrative obstacles in installing smart grid technology. Especially getting permits for installing components that cross either below or above roads is a difficult and a time-consuming process, which has slowed down many smart grid projects. Kitakyushu Smart City Project has filed an official request to simplify this process in the interest of making smart grid development easier Opportunities Japan is one of the world leading countries on research and innovations related to the energy value chain; from renewable energy such as solar and geothermal, energy storage in batteries and fuel cells, new generation vehicles like electric and hybrid cars, to applications of energy management systems and consumer electronics. Furthermore the awareness and driving force for conserving energy has been proven, both in industry and among households. There are good reasons why the Japanese government consider the energy related sector to be an important part of the country s growth engine. On the side of integrating consumers into smart grid technology, Japan is poised well to develop further. Japan has a high level of engagement with the smart house concept, and compared to other countries, there is a larger focus on home appliances and residential facilities, when discussing smart grids. As already discussed, the Japanese industry is allready highly energy-efficient. From the national perspective, there is a lot of low-hanging fruit to be gained from focusing on residential energy-efficiency. From the point of view of electric producers, the electric and communication system existing in Japanese homes is far less restricted than the Japanese power grid. There are little preventing conglomerates with both ICT and electronic appliance competencies from selling smart house systems. Through large-scale demonstration projects, Japan has been able to mobilize several different stakeholders in developing smart grid technology together. This means that many actors are engaged in smart grid technology, and a broad interest in the concept has developed. Some private companies already expect to be able to make a profit from large-scale smart grid investments, as Panasonic s project in Fujisawa, Sekisui House s project in Fukuoka and Mitsui Fudosan s project in Kashiwanoha shows. Japan has a head start in the appliance sector, with many companies already selling HEMS-ready appliances. This means that relatively little investment is needed for the average Japanese consumer to be able to start manage his/her energy consumption in a smarter way using HEMS. 91 (Uetake, 2013) 62

63 There are already government plans for liberation of the energy market and action for stimulate introduction of renewable energy through the Feed In Tariffs. As the Abe-cabinet seems intent on conducting a fiscally expansive policy, it is likely that other energy related business areas will receive a great amount of government support. As affordability seems to be crucial for consumer engagement, continued or increased subsidies could greatly expand the market. The Japanese government is also actively supporting the export capacity if its own industry through overseas demonstration projects. These, coupled with a commitment to international standardization, have the potential to open up global markets to Japanese smart grid products. Especially in the area of energy storage and integration of energy storage in smart grids, Japan has a big opportunity to tap into a market that is expected to expanding rapidly in coming years. That Japan is targeting emerging economies in Asia can also be a huge boon for its industry, as the energy market in South-East Asia is set to boom in the coming years. It is also possible that Japan start to strongly promote the development of smart grids through its development assistance activities, as the involvement of JICA in Yokohama s Y-PORT project and the opinions voiced for introducing more smart-grid technology in Japanese aid projects. This would lead to a quite different role for smart-grids than currently envisioned, and could bring important business opportunities for Japanese companies The road ahead While some incentives are already in place and being planned, it is still too early to tell how Japan s new energy policy will look like, and this is unlikely to change before the elections for the upper house of the Diet in summer However, although phase and details might be under consideration, the direction towards electricity security and resilient smart communities seems well anchored. The on-going and planned pilot project on domestic and international sites will show the potential of Japanese knowledge and innovation ability to flourish. However, the need for domestic reforms calls on features that are not known to be Japanese strenghts; e.g. flexibility, swift administrative reforms, international perspective and cost efficiency. This will challenge Japan s ability to harvest the growth opportunities. Smart grids is a concept that involves many sectors, and maybe the large and slow energy utilities at the domestic market will be the last to be fully on board, whereas innovative companies from other sectors that work close to customers and are used to competition might show the way. The latter might also cease the opportunities abroad and grow on the international market, where smart grids societies are about to take off. In any case, the standardisation of the new grid related technologies is key for smarter systems, allowing open innovation across the globe. 2.6 Bibliography 横 浜 グリーンパワー. (2012). Retrieved February 8, 2013, from Yokohama City: Accenture. (2010). Understanding Consumer Preferences in Energy Efficiency. Accenture. CEN/CENELEC/ETSI. (2011). Final report of the CEN/CENELEC/ETSI Joint Working Group on Standards for Smart Grids. 63

66 Economy, Trade and Industry: Ministry of Economy, Trade and industry. (2012, November 5). Launching international feasibility studies on "Smart Community". Retrieved February 12, 2013, from Ministry of Economy, Trade and industry: Ministry of Economy, Trade and Industry. (2012, April). Selected Devices to be Subsidized in the Project to Promote Introduction of the Home Energy Management System (HEMS). Retrieved February 8, 2013, from Ministry of Economy, Trade and Industry: Morozumi, S. (2010, October 12). NEDO s Grid Connection Related Research Activities. Retrieved February 13, 2013, from Expert Group on New and Renewable Energy Technologies: Morozumi.pdf National Policy Unit. (2011, December 24). Strategy for Rebirth of Japan. Retrieved February 12, 2013, from National Policy Unit: National Policy Unit. (2012, July 31). Comprehensive Strategy for the Rebirth of Japan. Retrieved February 31, 2013, from National Policy Unit: National Policy Unit. (2012, September 14). Innovative Strategy for Energy and the Environment. Retrieved February 12, 2013, from National Policy Unit: New Energy and Industrial Technology Development Organization. (2011, September). Annual Report Retrieved February 13, 2013, from New Energy and Industrial Technology Development Organization: New Energy and Industrial Technology Development Organization. (2012, March 22). Japan-U.S. Cooperation for Smart Grid International Standardization. Retrieved February 12, 2013, from New Energy and Industrial Technology Development Organization: Japan-U.S. Cooperation for Smart Grid International Standardization New Energy and Industrial Technology Development Organization. (2012, September 18). Launch of Smart Grid Demonstration Site in Los Alamos - Japan-U.S. Collaborative Smart Grid Project in New Mexico. Retrieved February 13, 2013, from New Energy and Industrial Technology Development Organization: New Energy and Industrial Technology Development Organization. (2012, May 24). NEDO and CDTI to Support Companies Participating in Smart Community System Demonstration Project in Malaga, Spain. Retrieved February 13, 2013, from New Energy and Industrial Technology Development Organization: New Energy and Industrial Technology Development Organization. (2012, October 26). NEDO Project Activities and Budget. Retrieved February 13, 2013, 66

74 lagstiftning och reglering per den december 2011 (senaste kompletta informationen) inom tre centrala områden för smarta elnät per delstat. Figur 3-4 Lagstiftning och reglering inom smarta mätare och avancerad mätinfrastruktur (AMI) per delstat, december Noter: Adopted AMI Requirements: In addition to direct orders to deploy AMI, this includes orders from the state public utility commissions directing utilities to file deployment plan, but excludes regulation or laws that serve only to authorize or simply promote AMI deployment. Pending AMI Studies: Includes states in which the legislature or public utility commission is studying the effects of pilot programs and large scale deployments. Figur 3-5 Lagstiftning och reglering för demand response per delstat, december Noter: DP = Dynamic Pricing, EE = Energy Efficiency. Dynamic Pricing Requirement: Includes orders mandating that utilities offer dynamic pricing. Dynamic Pricing Study: Includes states which have indicated in a proceeding to address adoption of PURPA Standard 14 of EPAct 2005 that they would investigate time of use (TOU) rates on a utility-by-utility basis. Energy Efficiency Requirement: Includes rules requiring the development of programs, development of standards, and rules requiring the incorporation of energy efficiency into the Integrated Resource Planning (IRP) process. 100 US Energy Information Administration, Smart Grid Legislative and Regulatory Policies and Case Studies, Ibid. 74

112 5 Indien 5.1 Summary Between July 30 th and August 1 st, 2012, two back-to-back grid failures in northern India left approximately 620 million people without power, and cost the country hundreds of crores worth of lost business 181. The failure of the northern, eastern, and north-eastern grids was a watershed event for India, and brought to light the extent of the country s fragile position vis-à-vis grid management, generation, and transmission capacity. Smart grid development has begun, to some degree, within existing policy frameworks such as the 2008 Restructured-Accelerated Power Development and Reforms Programme (R-ADRP), which was put forward by the Ministry of Power to reduce losses and introduce IT enabled accounting and monitoring systems. It is estimated that India will emerge as the world s 3 rd largest smart grid market after the USA and China, with the need for the installation of 130 million smart meters by 2021, and an estimated market valuation of 1.4 billion euros 182. In 2010, the India Smart Grid Forum (ISGF) was constituted, an inter-ministeral group to oversee the development of India s smart grid ambition, was constituted. Supported by the India Smart Grid Task Force (ISGTF), a draft Smart Grid Mission roadmap has been drafted scheduled to commence in 2014 and continue until The draft NSGM includes a large-scale testing and research phase, before widespread implementation. Fourteen pilot projects, involving both public and private actors in joint partnership, will to be the main force pushing the smart grid discussion. The R-ADRP is being seen as a way to gradually introduce smart grid sub-components, such as smart meters, and ICT measures. In addition to the exponential scale up of ICT communications processes, smart grid development is a cost intensive proposition that involves extensive re-engineering of the India s existing aged and inefficient grid infrastructure, in addition to the exponential scale up of ICT communication processes. Regulators continue to be risk-averse, and the ambition of India s smart grid future will depend on the results of the current phase of careful research. Much like parallel discussions in the country on energy development and energy savings, proof-of-concept is needed in order to develop the confidence of the market as well as the consumer. India s story of grid development will be one of gradualism, and democratic consensus building. 5.2 Background Approximately 400 million people do not have any access to power 183, and of those households that do, a vast majority do not have consistent, stable access. India s demand for power is set to quadruple by India s capacity addition has been exponential, since the 2003 Electricity Act, which introduced a greater degree of competition into the sector with private sector participation 184. However, despite this, capacity addition this has not 181 Sharma, Amol, Saurabh Chaturvedi, and Santanu Choudhary, India Power Network Breaks Down, Wall Street Journal blog, August 2, 2013 available at 182 (2011) India Smart Grid Legacy, ZPRYME 183 (2013), Dutta Sandeep and Shalabh Srivastava, Smart Grid: Roadmap for the Future: an Accenture point of view, Accenture 184 Ministry of Power, Government of India, available at 112

113 been enough to keep up with demand. In 2009, the recorded energy shortfall was estimated at 289,000 crores (SEK 33.5 billion 185 ) or 6 per cent of the GDP 186. In the measured power shortage was 8.5 per cent (79,313 million units) and in it is estimated to be 9.3 per cent (91946 million units) and 10.6 per cent during peak demand (14856 million units) 187. This, taken together with a national average for aggregate technical and commercial losses of 24 per cent 188, it is clear to understand that the discussion on Smart Grids, in India, is borne from the urgent requirements for loss reduction, peak power management, and efficient movement across generation, transmission, and distribution. Smart grids for India are part of a larger landscape of India s ambition for economic growth, energy access, and energy security. Smart grids provide a potential two-way delivery mechanism for parallel discussions on renewable energy, ultra mega power plants, energy-efficiency and off grid rural electrification. Although India has the third largest grid system in the world, with 82,355 circuit km of electrical transmission lines and a current installed capacity stands at 211GW 189. However per capita consumption is still below 1,000 kwh/year, which is just one quarter of the world average 190. Strengthening India s generation, transmission and distribution network has been a priority for the country since Independence. But until 2003 the sector was dominated by public sector monopolies, financial and technical mis-management. With the introduction of the Electricity Act (2003) the sector was opened up to private sector competition and the potential for robust market development. Table 5-1 Additional capacity by Plan Period Plan Period 10 th Plan ( ) 54,000 MW 11 th Plan ( ) 62,000 MW Total capacity Addition 12 th Plan ( ) 90,000 MW 191 Source: Annual Report , Ministry of Power, Government of India India has linked economic growth and human development to a concurrent increase in the per capita use of energy. With an average growth rate of 6 per cent per year, India has continued to assert that growth will be based on coal as a primary energy source. In 2011, electricity generated from coal, natural gas, and oil comprised up to 65 per cent India s energy supply. Capacity addition has continued to grow between the 10 th to 12 th plan (Table 1). However, with the expected increase in energy demand set to triple by 2030, and with the rising cost of coal, India will have to look at other ways of meeting its energy demand. Renewable energy development, energy efficiency actions, and smart grid deployment are all parts of a discussion that is driven by the country s growth ambition last accessed on March 23, (2009), WÄRTSILÄ, The Real Cost of Power, available at wartstila.com 187 (2013), Central Electricity Authority, Ministry of Power, Load Generation Balance Report , available at 188 Vijay L. Sonavane, Member (tech) MERC Mumbai, Presentation given at India Smart Grid Day, 17 Jan, Ministry of Power, Government of India, available at 190 Ministry of Power, Government of India, available at 191 Estimated 113

114 Figure 5-1 Political Economy of Power Source: E3 and RAP Energy is on India s list of Concurrent subjects. Concurrent subjects require shared decision making between the Central and state governments. The Power Grid Corporation of India, a public transmission utility, and under the Ministry of Power mandates standard setting between public utilities (Diagram 1). Power distribution is carried both by state utilities and private distribution companies. State Electricity Boards (SEBs), state owned utility companies, are responsible for the distribution of power to both rural and urban consumers. Average aggregate technical and commercial losses (AT&C), in India s power sector are estimated to be up to 25 per cent of power generated with some states having as high as 50 per cent. But the capacity of weak SEBs to find funds to meet the technical challenges of grid management has also contributed to the worsening situations of energy distribution. 192 Many of the state utilities are in debt due to extreme mis-management. Additionally however, as state entities, SEBs are often required to provide highly subsidised and often altogether unmetered power to vote banks such as the agricultural sector. Political pressure, and populist actions have resulted in pushing inefficient SEBs even further into debt. The Restructured Accelerated Power Development Programme (R-APDRP), first introduced by the Government of India in 2008 in the Eleventh Plan, and carried on into the Twelfth Plan cycle ( ) aims to reduce AT&C losses to below 15 per cent. It also focuses on the importance of adopting Information Communication Technology (ICT) innovation for accounting and baseline data collection 193. Twenty per cent of the US $10 billion set aside by the Ministry of Power for R-APDRP is for ICT development. R-AP- DRP is seen by many as the first step to make India smart-grid ready. 192 SEB bailout; throwing good money after bad, via September 24, 2012, last accessed (2008) Ministry of Power, Government of India, Guidelines for the Re-structured Acceleratd Power Development and Reforms Programme (APDRP) during XI Plan, available at 114

115 5.2.1 Why promote a smarter grid? Demand for energy exceeded supply by 10 per cent during peak periods between , and this is estimated to increase in In 2011, India imported 85 million tonnes of coal and this is set to grow to 185 million tonnes in As part of its strategy to meet increasing demands, 16 coal fired Ultra Mega Power Plants have been envisioned by the Government, with generation of over 4000 MW per plant 195. As coal prices increase, so too does the economic value of integrating demand side management, and efficient distribution as key components of an overall strategy for energy security and access. This has led to pro-active development of renewable energy programmes, and an estimated doubling of renewable generation of up to 30 GW by The Ministry of Power has set the objective of power for all during the Twelfth Plan period with no power outages taking place by Outages continue to cost the country Smart grids in the Indian context is seen to be attractive in its potential to, through interactive high-end communication, reduce transmission and distribution losses, manage peak power through demand response, integrate and manage the planned increase in electric vehicles as well as integrate renewables and distributed generation efficiently. 5.3 How to promote a smarter grid With recognition of the fragmented situation of India s electricity supply chain, the Ministry of Power has not yet taken the decision to set in place a specific framework for smart grid deployment. R-APDRP is seen to be the initiative around which Smart Grid friendly projects can start. The India Smart Grid Forum (ISGF), a public private initiative to support the Government, has prepared a smart grid vision and roadmap with an estimated budget of INR 31,419 crore (SEK 37.7 billion) 196 ISGF however has made clear the need for transparent signalling by the government in order for market confidence to be realised, in order to make some of the larger and more costly infrastructure changes that need to come with Smart Grid development. A proposal for a National Smart Grid Mission has been tabled, with the Ministry of Power. The Government has made clear its inability to support large-scale public programmes, bringing the need for the market to be the first mover in the smart grid debate 197. It is understood that in order for the Government to take a risk by approving a policy with a substantive budget implication, there is a need for political will to be built around the actual potential of Smart Grid deployment. Not unlike the advent of the country s solar mission and other renewable energy initiative, the Government is unlikely to make a decision without robust proof of concept. For this reason, critical emphasis is put on the pilot projects, submitted by state utilities 198. For the immediate short-term, and with 2014 being an election year, it will be the resultsbased pilot projects, and the development by the state utilities that will create a cross party robust argument for smart grids in India , Indian Chamber of Commerce, The Indian Coal Sector: Challenges and future outlook, presented at November th India Coal Summit 195 Power Finance Corporation, available at 196 (2013) India Smart Grid Forum, Smart Grid Vision and Roadmap for India (benchmarking with other countries) Final Recommendations from ISGF, presented at India Smart Grid Day, Jan 18, Kumar, Manoj, Austerity in India: defense and welfare to be slashed, Reuters, Jan 13, Interview with Prakash Nayak, ISGF, Chair Renewables and Microgrids, March 22,

116 5.3.1 Research, development and innovation 14 projects have been shortlisted by the Ministry of Power and ISGF for deployment as part of the R-APDRP, with a budget of 400 crore (SEK 48 billion), with 50 per cent being given as a grant by the Central government. The remaining 50 per cent is to be put forward by the Utilities themselves (table 2). The purpose of the pilot projects is to demonstrate confidence in the potential of smart grid deployment. As can be seen from the pilot projects selected, the main focus of the demonstration sites to dates is on smart metering for load management. As the pilot projects comes within the auspices of R-APDRP, with the overall objective of reducing aggregate technical and commercial losses, it is not surprising that there is a stronger focus on accounting, rather than demand response. Although the Government might not have taken any explicit steps to promote the requested Smart Grid Mission, by virtue of making available support for projects under R-APDRP for smart grid development, there is implicit support for the continuation of Smart Grid discussions within India. All stakeholders interviewed were of the opinion that the pilot projects provide two potentially valuable outcomes. The first would be to provide utilities the capacity required to value the potential that expanded smart grid deployment could provide. The second outcome would be the larger importance of providing evidence-based support to the Central Government for extending institutionalised support for smart grid deployment. The pilot projects, covering both industrial and residential areas, are set to begin operations in mid Table 5-2 Smart Grid Pilot Projects as part of R-ADPRP Sl No Utility Area Proposed Functions 1 CESC Mysore Mysore AMI/OM/PLM /MG/DG 2 APCPDCL, AP Jeedimetla IND Estate AMI/PLM/OM/ PQ 3 APDCL, Assam Guwahati PLM/AMI/OM PQ/DQ 4 UGVCL, Gujarat 5 MSEDCL, Maha. 6 UHBVN, Haryana Naroda AMI/OM/PLM/ PQ Consumer Nos Baramati AMI/ROM Panipat City AMI/PLM TSECL, Tripura Agartala AMI/PLM HPSEP, Himachal Nahan AMI/OM/PLM/ PQ 9 Puducheri Puducheri AMI 87, JVVNL, Rajasthan 11 PSPCL, Punjab Malimandi, A SAR 12 CSPDCL, C GAD 650 VKIA, Jaipur AMI/PLM 508 OM 9000 Siltara AMI/PLM KSEB, Kerala AMI 25, WBSEDCL, Silguru Town AMI/PLM 4,

117 Sl No Utility Area Proposed Functions West Bengal Consumer Nos AMI: Advanced Metering Infrastructure OM: Outage Management PLM: Peak load management PQ: power quality DG: Distributed generation MG: micro grid Source: Proof-of-concept projects have been game-changers for the understanding of the savings potential of smart grid deployment, and ensuring continued political momentum for ultimate smart grid institutional support. In 2009, the Mangalore Electricity Supply Company (MESCOM) had taken on a proof of concept study, with technical partner Centre for Study of Science, Technology and Policy (C-STEP) project of providing lifeline supply of power during reduced supply or outages. The study, covering 100 households, demonstrated that consumers were willing to pay a small premium to have uninterrupted supply. It also highlighted the ability of consumers to change behaviour, in a very short period of time, when the right incentives were provided 199. The US Trade and Development Agency, in 2011 provided a grant of US $ 686, 447 to the New Delhi Power Limited (NDPL), with technical partner General Electric (GE) introduced smart grid pilot project. The project objective was to increase power reliability and reduce outage recovery time across the distribution network. NPDL chose GE Energy s PowerOn system to increase power reliability and reduce outage recovery time across its distribution network of North & North West Delhi. GE s PowerOn OMS will be integrated with the previously installed GE Energy Smallworld geospatial information system (GIS) and NDPL s existing distribution management system to drive power reliability and quality. Losses have been reduced from 54 per cent to approximately 18 per cent in the span of 5 years 200. This was done with additional support of the US Trade and Development Agency with a grant of INR 37 million (SEK 4.4 million). Renewable Energy/Grid Interface Currently 12 per cent of installed electricity generation capacity is through renewable energy, with 70 per cent being provided by wind. During the 12 th Plan period ( ), and as a result of aggressive policy initiatives, the expected capacity addition for grid connected renewable energy is set to be 41 GW, bringing the total installed capacity to 66 GW (Table 3). Renewable energy (RE) development is geographically specific. Of India s 28 states and 7 Union territories, RE rich states are mainly Tamil Nadu, Karnataka and Andhra Pradesh in the South, Gujarat and Maharashtra in the West and Rajasthan and Himachal Pradesh in the north. In parallel with the increased ambition of RE development, the Government of India has also pushed for increased transmission of RE beyond home state purchase. Ceiling limited will be set for home state purchase of renewable energy. 199 Interview with Rahul Tongia, Advisor India Smart Grid Forum, March 21, GE Pressroom, available at 117

118 Table 5-3 Projected Renewable Energy addition for 12th and 13th Plan Source: Green Energy Corridor, Power Grid Corporation of India Ltd. The Government of India has undertaken a larger mapping and feasibility study to determine how best to develop smart grid functionality to better ensure grid stability with the future increased injection of renewable energy sources. Given the fluctuating nature of supply from renewable energy, the negative correlation between RE generation and peak demand, and the mandated requirement of increased inter-state transmission and distribution, the study presents technical, regulatory and software recommendations 201 Power Grid Corporation of India Ltd., under the instruction of the Ministry of New and Renewable Energy and Forum of Regulators, has prepared a roadmap for effective integration of increased RE capacity addition to the grid from The report emphasises the need for Transmission system strengthening for intra and inter state lines. This is set to be done by increasing the number of pooling stations, between 132kV and 400kV) as well as high capacity hybrid corridors (400kV 765kV) with increased use of both High Voltage Direct Current (HVDC) and Alternating Current (AC) Renewable Energy Mangement Centres to be developed and co-located with state and regional load dispatch centres, with data being collected at the plant level onwards Smart Meters and forecasting hardware the need for metering to be accurate for smart grid development is critical. As part of R-ADPRP 130 million meters are planned for deployment, however questions of inter-operability between new and old systems need to be further addressed Communication software the role of ICT is integral for RE injection and load management. The choice of technology, limited in R-ADPRP to GPRS and GIS will need to be expanded in order to provide backward looking analysis, and to take into account that only 10 per cent of India today has access to internet and 3G connectivity

119 The Green Energy Report estimates the cost of developing effective systems for renewable energy integration would be INR 42,000 crore (SEK 50.5 billion) 202. Development around smart mini-grids, where energy demand is effectively managed by a diverse range of energy sources such as solar, wind, and hydro is at early stages in India. Mini-grids are seen as a means to extending energy access to those areas that are unlikely to be easily grid connected, in remote and rural areas of the country. However, mini-grids are also discussed as emergency back up, and isolated units, in the case of widespread power outage for largescale consumers. The first pilot project to understand the viability of the smart micro-grid is been commissioned by the Ministry of New and Renewable Energy, and the Ministry of Power and being implemented by The Energy and Resources Institute, New Delhi (Diagram 3) 203. Of the 14 pilot projects selected by the Ministry of Power for smart grid development, the city of Mysore has chosen to test micro-grid applicaion for grid connected areas, and as an emergency energy storage solution. Figure 5-2 Smart Micro Grid Schematic, at The Energy Resources Institute (TERI) Campus Source: The Energy Resources Institute, Business development and export promotion Although India s smart grid mission has not yet been rolled out, steps have been taken to put in place to develop smart grid correlated action. There is clear recognition that improvements in grid infrastructure, technology and software can help India leapfrog its energy requirements. Although the market is still in its nascent states, the presence of private sector players, as part of the Public Private Partnership The India Smart Grid Forum represents the potential value of the market, when first official steps are taken. 130 million meters are to set to be 202 (2012), Power Grid Corporation of India Ltd., Report on Green Energy Corridor Transmission Plan for Envisioned Renewable Capacity, available at 203 Press Information Bureau, Renewable Energy Smart Grid System Commissioned, Government of India, July 1, 2011, available at 119

120 installed by Ericsson India, in 2010, developed a new vertical for the business development for smart grids given the extensive role of ICT in smart grid deployment. Despite the high level of business opportunity in the development of smart grids, in India, the current state of market confidence is mixed (Diagram 4). The immediate business case is seen in the areas of integration of renewables and power load optimisation. These areas can be tackled through the use and deployment of ICT technologies, with high level of returns. In this way, smart meters is seen to be the necessary first step in the development of smart grids, in India, to allow for detection of efficiency losses. This first step in data management would also permit stakeholders to better understand the potential of extended smart grid deployment. Figure 5-3 Business perspective of Smart Grid investment opportunities Source: Boston Consulting Group and GESI Smarter 2020 A parallel motivation for smart grid development is the recently released National Electric Mobility Mission, 2013 (NEM). NEM envisions 6.7 million electric vehicles by Concerns about peak load management, and the opportunity to develop vehicle to grid energy storage is one of the motivations to develop the smart grid discussions. Apart from smart meters, the investment will be geared towards grid automation, communication infrastructure, IT systems and hardware; home area network, and system integration. India Smart Grid spending is likely to touch about Rs. 9,500 crore (SEK 50 billion) by 2015 from the current level of Rs. 5,500 crore (SEK 4.2 billion) Regulation Although the draft National Smart Grid Mission has not been cleared by Government, there is a strong recognition that institutionalising smart grid development will take place after there is strong enough evidence to demonstrate the possibility of realisation of transmission and distribution loss reduction, increased household engagement and support 120

121 for smart grid development, and greater capacity by utilities to keep pace with the required management of ICT communication for two way demand management. The draft Smart Grid Mission has been prepared by ISGF. Table 5-4 Draft Roadmap National Smart Grid Mission Draft Roadmap 12 th Five Year Plan and Smart Grid Deployment Smart Utilities 1. Enabling programmes and projects in distribution utilities to reduce AT&C losses to below 15 % by 2017, below 12% by 2022, and below 10 % by Development of reliable, secure and resilient grid supported by a strong communication infrastructure, by Utility specific roadmap for implementation of smart grid technologies across the utility by Integrated technology trials, through a set of smart grid pilot projects by 2015; rollout of smart grids in all urban areas by 2020, and nationwide by Effective information exchange platform that can be shared by all market participants, including prosumers, in real time which will lead to the development of energy markets Smart Policies 1. Formulation of policies and programmes by 2013, for mandatory demand response (DR) infrastructure for all customers with load above 1MW, above 500 kw by 2015, 100kW by 2017, and above 20kW by Investment in R&D, training and capacity programmes for creation of adequate resource pools for developing and implementing smart grid technologies 3. Development of appropriate standards for grid development and active involvement of international and national experts in development of standards Total Cost INR 31,419 crore / SEK 37.7 billion Source: Presentation by India Smart Grid Forum, National Smart Grid Mission (NSGM), India Smart Grid Day Jan Consumer engagement The vision of the Ministry of Power is to have Power for All by 2027, with minimised outages and stable connectivity. This is to be done through both infrastructure upgrades as well as demand side management. The ISGF has developed the concept of the prosumer or pro-active consumers that have the information and the ability to choose their energy options, at the household level. Discussion on consumer engagement, within the smart grid arena in India, has focused on the extensive awareness required to work with consumers, such that they will be able engage fully and contribute to the required benefits of smart grid deployment. However studies have shown that consumers across India are struggling with power outages that last 3 hours per day on average and sometimes last whole days. Most households, to cope with these outages, have power backup in the form of diesel generators for larger appliances and battery inverters for basic appliance use. Use of these back-up systems effectively amounts to a premium each household is required to pay to benefit from relatively undisturbed power connection. It was understood that the use of these backups actually costs consumer more than they would have paid in areas where power distribution had been privatized and available 24hours per day, without outage concerns (Figure 5-4). 121

122 Figure 5-4 Real cost of power for households with and without 24x7 supply Source: WÄRTSILÄ, Real Cost of Power 5.4 Main observations and concluding remarks Smart grids provide a way in which India can leapfrog electricity transmission and distribution, through load management, demand response, and energy efficiency. Smart grids is a necessity for India to be able to meet its growing demand for electricity, and its limited ability to meet this with coal and business as usual action. Feedback from stakeholders makes the strong case for smart grid development in India. Private sector actors have made their interest clear, with their participation in the India Smart Grid Forum. The Government of India however are still hesitant about moving forward with a formal institutionalised framework of smart grid deployment. This is as much a question of political economy with the current state of management of state utilities, as it is one of financial feasibility. Although the market for smart grids in India is forecasted to develop into the third largest market worldwide, by 2020, the lack of specific regulation will delay the confidence of market actors to move forward. It will be the selected pilot projects that will provide the bottom up, proof-of-concept that is required for confidence building of all stakeholders. It will also serve to provide the beleaguered utilities an understanding of options available for effective management. 122

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